The $3.2 billion Vanguard Insured Long-Term Tax-Exempt Fund will soon be no more. On Tuesday the Valley Forge, Pennsylvania-based asset manager confirmed that it will merge the fund into the $2.8 billion Vanguard Long-Term Tax-Exempt Fund on December 12. Chief investment officer Gus Sauter blamed the fact that "insured bonds provide little, if any, additional benefit over high-quality uninsured credits."
Company Press Release
VALLEY FORGE, PA, November 4, 2008—Vanguard is planning to merge the $3.2 billion Vanguard Insured Long-Term Tax-Exempt Fund into the $2.8 billion Vanguard Long-Term Tax-Exempt Fund on December 12, 2008. In conjunction with the planned merger, Vanguard Insured Long-Term Tax-Exempt Fund has closed to new accounts.
“The municipal bond market has changed to a point where insured bonds provide little, if any, additional benefit over high-quality uninsured credits. We concluded that a fund focused solely on insured bonds no longer provides tangible benefits,” said Gus Sauter, Vanguard’s Chief Investment Officer. “Shareholders will be better served by merging the two portfolios to create a single, well-diversified, high-quality fund.”
Earlier this year, credit-rating agencies downgraded six of the major bond insurers in the United States, leaving just three insurers rated AAA, and the market continues to face scrutiny. Following the downgrades, most insured municipal bonds began trading at prices based solely on the credit quality of the municipal bond issuer, discounting the value of the insurance entirely and creating little economic incentive for issuers to obtain insurance.
Like the insured fund, Vanguard Long-Term Tax-Exempt Fund adheres to high credit quality standards. The fund’s shareholders also benefit from the extensive capabilities of Vanguard’s internal credit-research team.
“Vanguard’s credit-research group performs an objective, independent analysis of the creditworthiness of any issue in which Vanguard invests or expects to invest,” said Mr. Sauter. “While industry ratings are an important indicator of financial strength, the credit research group conducts additional due diligence, scrutinizing each bond and its issuer before recommending a purchase into a Vanguard portfolio.”
Reid O. Smith will remain as portfolio manager for Vanguard Long-Term Tax Exempt Fund. John Carbone, who currently oversees Vanguard Insured Long-Term Tax-Exempt Fund, will continue to manage three other municipal funds for Vanguard.
Vanguard, headquartered in Valley Forge, Pennsylvania, is one of the world’s largest investment management companies and a leading provider of company-sponsored retirement plan services. Vanguard manages more than $1 trillion in U.S. mutual fund assets, including more than $390 billion in employer-sponsored retirement plans. Vanguard offers more than 150 funds to U.S. investors and more than 50 additional funds in non-U.S. markets.