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Vanguard Repeals Tax-Managed Funds' Redemption Fees

Plus, Fairholme's new fund bets big on MBIA, and more.

Ryan Leggio, 05/02/2011

Vanguard has removed the redemption fees on its domestic tax-managed funds. Effective immediately, Vanguard Tax-Managed Balanced VTMFX, Vanguard Tax-Managed Capital Appreciation VMCAX, Vanguard Tax-Managed Growth and Income VTGIX, and Vanguard Tax-Managed Small-Cap VTMSX will stop charging a 1% redemption fee on fund shares held less than five years.

The news comes as flows into tax-efficient ETFs following similar strategies, which can be bought and sold throughout the day and carry no redemption fees (but often require brokerage commissions), have steadily increased. Meanwhile, Vanguard's tax-managed funds have not been big draws recently even though they are very competitive with ETFs on price and tax efficiency.

All of the firms' tax-managed funds have had outflows in the trailing 12 months though March 31. Together, the firm's domestic tax-managed funds have more than $9 billion in assets.

One of the arguments in favor of the redemptions fees has been that they reduced shareholder moves in and out of the funds. Such activity can force managers to sell securities and realize capital gains. It's not clear what effect the redemption-fee cut will have on the funds' tax efficiency.

The firm said it's keeping in place the redemption fee on Vanguard Tax-Managed International VTMGX because, historically, international equity funds have experienced higher levels of short-term trading by investors trying to profit from differences between closing prices for stocks in different global markets in different time zones and when U.S.-based funds price their shares at 4 p.m. Eastern Standard Time.

Vanguard also said it will eliminate Investor share classes for its tax-managed funds and make low-cost Admiral shares available for them. On May 13, 2011, it will change the Investor shares of Tax-Managed Balanced, International, and Small Cap into Admiral shares. Those funds didn't have Admiral shares before. The family also will convert the Investor shares of Tax-Managed Capital Appreciation and Tax-Managed Growth and Income into their lower-cost Admiral shares. All of the Admiral shares will have $10,000 minimum initial investments, down from $100,000.

TCW's Suvall Retires
TCW announced that Susan Suvall is retiring at the end of June. Diane Jaffee will take the helm of Suvall's TCW Value Opportunities TGVOX.

Suvall has endured a stretch of poor performance that has tarnished her longer-term record. Value Opportunities is up 6.21% annually through April 28, 2011, over the past 10 years, while the Russell Midcap Value Index has appreciated 8.9%. The fund has beaten the index by less than 1 percentage point per year since Suvall became a manager on Nov. 3, 1997.

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