The Vanguard Capital Value Fund
has closed to new investors as of Friday at 4 p.m., the Valley Forge, Pennsylvania-based fund giant said in a press release
The move is not unprecedented. Vanguard closed its High-Yield Corporate Fund
in 2003 for six months and its Health Care Fund
in 1999 for 10 months.
Still, Vanguard spokeswoman Linda Wolohan said that there is no timeframe for the reopening of the fund.
"We don't have any plans to reopen the fund at this time," Wolohan told the MFWire
investors earlier in the week to avoid investing in four of its hottest funds, including the Capital Value Fund.
Wolohan declined to comment when asked if the other three funds mentioned--an emerging markets fund, a precious metals fund, and the previously-mentioned High-Yield Corporate Fund--might soon face the same fate as the Capital Value Fund.
"I can't speak to that," Wolohan said.
Since the end of February, the Vangaurd Capital Value Fund (managed by Wellington Management
) has seen assets triple, partly due to the return of the fund (68.5 percent year-to-date) and partly due to huge inflows. The fund's YTD returns are the highest of all Vanguard funds.
"Closing the fund for a cooling-off period serves two purposes," stated Bill McNabb
, Vanguard CEO. "First, it protects existing shareholders from higher transaction costs that can result from short-term-oriented investors moving in and out of the fund. Second, it protects prospective investors from themselves, as high-performing funds will most certainly drop off at some point."
The fund was introduced in December 2001. It now claims $742 million in assets under management.
Company Press Release
VALLEY FORGE, PA, October 9, 2009—Vanguard is implementing a “cooling off” period for Vanguard Capital Value Fund (VCVLX) by closing it to new shareholder accounts, effective immediately.
The $742 million Capital Value Fund is Vanguard’s top-performing* fund in 2009, with a total return of 68.5% through the first nine months of the year (compared with the 21.6% return of the broad U.S. stock market**). Assets in the fund have more than tripled since the end of February as a result of market appreciation and strong cash inflows.
“Despite our efforts – at both a company and an industry level – to educate investors about the perils of performance-chasing, we continue to be concerned about this behavior,” said Vanguard CEO Bill McNabb. “Closing the fund for a cooling-off period serves two purposes. First, it protects existing shareholders from higher transaction costs that can result from short-term-oriented investors moving in and out of the fund. Second, it protects prospective investors from themselves, as high-performing funds will almost certainly drop off at some point.”
Vanguard employed similar cooling-off periods for its High-Yield Corporate Fund in 2003 and its Health Care Fund in 1999. The funds reopened after six months and ten months, respectively, as investor interest subsided and cash flows moderated.
The sizable influx of cash into the Capital Value Fund this year has not affected the ability of the advisor, Wellington Management Company LLP, to implement its investment strategy. Wellington Management has advised the fund since its inception in 2001.
The Capital Value Fund will not accept new accounts from retail shareholders, financial advisors, institutions, or retirement plan sponsors. Existing shareholders, including participants in defined contribution plans that already include the fund as an option, may continue to invest in it.
In August, Vanguard closed another stock fund and extended the limits on additional purchases in two other funds, both already closed to most new accounts.
Vanguard PRIMECAP Core Fund ceased accepting new accounts from most retail clients and capped additional purchases by most existing shareholders at $25,000 annually. The other two funds—PRIMECAP Fund and Capital Opportunity Fund—placed a $25,000 annual cap on additional investments by certain clients who had not previously been limited in their share purchases.
In total, seven Vanguard funds are currently closed to most new accounts: Admiral™ Treasury Money Market Fund, Capital Opportunity Fund, Capital Value Fund, Convertible Securities Fund, Federal Money Market Fund, PRIMECAP Fund, and PRIMECAP Core Fund.
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 nearly $1.3 trillion in U.S. mutual fund assets, including nearly $490 billion in retirement assets. Vanguard offers more than 160 funds to U.S. investors and more than 50 additional funds in non-U.S. markets.
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