Vanguard merging five of its fundsNews added by Benefits Pro on October 22, 2013

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By Paula Aven Gladych

Vanguard is streamlining its investment offerings by merging five funds — including two index funds, an actively managed growth fund and two retirement income funds — the firm announced.

Vanguard plans to merge the $16.3 billion Vanguard Developed Markets Index Fund with the $18.4 billion Vanguard Tax-Managed International Fund. The funds share similar holdings and seek to track the same benchmark — the FTSE Developed ex North America Index. The merged fund, which will be called the Vanguard Developed Markets Index Fund, will offer Investor, Admiral, Institutional, Institutional Plus, and ETF Shares.

Two funds that seek to track the Standard & Poor's 500 Index also will merge. The $3 billion Vanguard Tax-Managed Growth and Income Fund will merge with the $143 billion Vanguard 500 Index Fund. Shareholders of the Tax-Managed Growth and Income Fund will benefit from the lower expense ratio (0.05 percent) of the Admiral Shares of the 500 Index Fund.

A merger of the $738 million Vanguard Growth Equity Fund and the $4.4 billion Vanguard U.S. Growth Fund is also planned. The two actively managed large-capitalization growth funds seek to provide long-term capital appreciation and employ a fundamental stock-selection process that emphasizes stocks with strong earnings potential.

Both also utilize a multi-manager structure. Following the merger, the U.S. Growth Fund will retain its current advisors (Delaware Investments Fund Advisers, Wellington Management Company, LLP, and William Blair & Company L.L.C.) and will add Baillie Gifford Overseas Ltd. and Jennison Associates LLC from the former Growth Equity Fund.

The merger will reduce plan expenses by quite a bit as the expense ratio of their current fund is 0.54 percent, compared with the 0.45 percent expense ratio of Investor Shares and the 0.31 percent expense ratio of Admiral Shares of the U.S. Growth Fund.

The three portfolios of the Vanguard Managed Payout Fund series will also be consolidated into a single fund. The $804 million Vanguard Managed Payout Distribution Focus Fund and the $110 million Vanguard Managed Payout Growth Focus Fund will merge into the $531 million Vanguard Managed Payout Growth and Distribution Fund, which will be renamed Vanguard Managed Payout Fund.

The remaining fund will adopt a new annual distribution target rate of 4 percent (from 5 percent) and continue to adhere to a total return-based approach by allocating its assets across Vanguard funds that invest in a broadly diversified selection of investments, including stocks, REITs, bonds, cash, inflation-linked investments, and selected other exposures, such as commodities and market-neutral investments.

Vanguard is one of the world’s largest investment management companies and a leading provider of company-sponsored retirement plan services. It manages nearly $2.3 trillion in U.S. mutual fund assets, including more than $300 billion in ETF assets.

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