Vanguard shutters $1 billion mutual fund

Vanguard shutters $1 billion mutual fund
Convertible securities fund to be liquidated because it attracted the wrong kind of investors.
JAN 03, 2019
The ongoing evaluation and cleanup of the fund lineup at The Vanguard Group is eliminating another large mutual fund from its big mutual fund complex. The $5 trillion asset manager announced Thursday that it will liquidate the Vanguard Convertible Securities Fund (VCVSX). The $962 million mutual fund "has not gained broad acceptance among targeted investors," a company spokeswoman said. At nearly $1 billion, the hybrid fund that converts bonds to stocks will go the way of the buggy whip and white tennis balls. Launched in 1986 and subadvised by Oaktree Capital Management, the strategy's heyday is over, and investors will be getting their money back in March. "The fund reached a high-water mark in terms of performance and fund size in 2011," said Vanguard spokeswoman Emily Farrell. The fund's assets peaked in 2011 at $2.2 billion, following a 19.24% gain in 2010 and a 40.81% surge in 2009. By the end of 2016, when the fund gained 6.62%, its assets had dropped to $1.5 billion. Last year, the fund declined by 2.72%, while the category lost 2.02%. Vanguard's fund has been losing assets even though the fund's performance has essentially been in line with the category and its expense ratio of 35 basis points is well below the category's average expense ratio of 1.2%. "The convertible fund is sizable with nearly a billion in assets, but it is a rare Vanguard fund to experience outflows in recent years," said Todd Rosenbluth, director of mutual fund and ETF research at CRFA. Mr. Rosenbluth speculated that the liquidation might say something about the appetite for the more-sophisticated strategy. "It's not a very large group of actively managed funds out there in this style," he said. "Perhaps fewer investors are looking for a dedicated convertible slice." Ms. Farrell said that the strategy was designed for foundations, endowments, and corporate and nonprofit retirement plans, but the current investor base is primarily made of up retail investors. "We're very specific on what we think is the type of investor best suited for any type of investment," she said, citing the factor-based funds launched last year. "We were very specific about the complexity and nature of factor funds and that they are best suited for those investors that are advised," she added. However, although the convertible fund was originally targeted toward institutional investors, it has always been offered through a single retail share class with a $3,000 investment minimum. Jeff DeMaso, co-editor of The Independent Adviser for Vanguard Investors newsletter, shrugged off the liquidation as the cost of being a mutual fund behemoth. "A billion-dollar fund would be a huge success at most firms, but with Vanguard's assets, it's just not worth the hassle anymore," he said. "It's partially because Vanguard has become a very large firm, and partially because the fund's assets are going the wrong way." The fund stopped taking new investors Thursday, and will close to all investments in early March, according to Vanguard.

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