Another shakeup in the 529 plan space and more.
Vanguard has delayed the launch of two international-bond index funds and exchange-traded funds. The family had planned to launch its first overseas fixed-income index offerings--Vanguard Total International Bond Index Fund and Vanguard Emerging Markets Government Bond Index Fund--in the first quarter of this year but said this week that it won't roll out the funds until later in 2012. In interviews on Wednesday Vanguard CIO Gus Sauter said "operational issues" caused the delay. "We're still moving forward. We're just making sure everything is in place," he said. He added that he was confident the funds and systems to support them will eventually be ready but that "they just weren't coming together as fast as we had anticipated."
Still, this is the second foiled launch of new Vanguard fixed-income index funds and ETFs in one year. In January 2011, the family withdrew its application with the Securities and Exchange Commission for three municipal-bond index funds and ETFs. At the time, severe volatility roiled the muni market and threatened to "impede the funds' abilities to tightly track their respective benchmarks, deliver on the funds' objectives, and meet shareholders' expectations," Vanguard said. Investment professionals at the family have since said they expect to reapply for permission to launch the municipal funds, but they have yet to do so. Vanguard's Sauter and other executives insist the fund complex hasn't scrapped the debut of the two new taxable international-bond funds, just temporarily delayed them. But the decision does come as the European sovereign debt crisis continues to roil currency and credit markets and after the world bond and emerging-markets bond categories lagged most other fixed-income groups in 2011.
Vanguard has no specific time frame for the international-bond fund launch, but, for what it's worth, Vanguard principals on Wednesday talked as if the funds would eventually be available. John Ameriks, head of the family's investment counseling and research group, for example said Vanguard was seriously considering adding one or both of the funds to the arsenal of the Vanguard Managed Payout Funds, a trio of endowmentlike asset-allocation offerings.
Wells Fargo Exits College-Savings Market
Wells Fargo will not seek to renew its 529 plan contract with Wisconsin when it expires later this year. The move is just the latest in a string of recent shakeups in the 529 world.
The San Francisco-based financial services firm initially took over the state's college-savings franchise in 2005 as part of its acquisition of the fund assets run by Strong Financial, the plans' previous program manager. The two plans, EdVest (direct and advisor-sold) and Tomorrow's Scholar (advisor-sold), together manage $2.6 billion of assets, a modest amount compared with states like New York that have five times that amount. EdVest earned a Morningstar 529 Plan Rating of Average in 2011, while Tomorrow's Scholar was rated Below Average by Morningstar analysts. Morningstar's main criticisms of the plans stem primarily from some lackluster underlying funds and cost. Wells recently had made improvements on both fronts in the EdVest plan by adding low-cost Vanguard index funds. That move was shareholder-friendly, but it may have made the plan less profitable for Wells Fargo.
It is unclear how many parties may bid for Wisconsin's 529 program-management contracts. California recently shuttered its advisor-sold 529 plan after it received no bids to run the plan. California, however, has no in-state tax benefits for 529 college savers, so other states' 529 plans can--and do--actively urge California college savers to choose plans outside the state. The Wisconsin plans may be more attractive to bidders because the state's tax benefits for 529 account holders are among the more generous offered nationwide, according to a 2011 Morningstar study. Those tax benefits give Badger state residents good reason to keep their college savings in one of the local plans up for bid.
UBS Mistake Leads to Fine
The Securities and Exchange Commission charged UBS Global Asset Management, a subsidiary of UBS, with failing to properly price fixed-income securities in three mutual funds it manages. The charges stemmed largely from mortgage-backed securities the firm bought in 2008 for $22 million. UBS, the SEC says, used stale pricing from broker-dealers and other third-party providers that didn't take into account the purchase price, leading to the securities being overvalued (and the funds' net asset values to be misstated). It took more than two weeks for the firm to correct the mistake. UBS agreed to pay a $300,000 fine to settle the charges.
MLP Trend Gains Steam
SteelPath Advisors, the Dallas-based firm that specializes in investing in master limited partnerships, recently launched two new funds, SteelPath MLP and Infrastructure Debt MLPUX and SteelPath MLP Alpha Plus MLPLX. Master limited partnerships, or MLPs, typically focus on energy infrastructure like a pipeline and, like REITs, return much of their profits to shareholders. They've been getting attention lately for two reasons: performance and yield. Indeed, all of the 11 funds with MLP in their names have been launched during the past two years. Of the seven that traded for all of 2011, the average return was 8.7% versus a 7.5% loss for the equity energy category (which is where the MLP funds are classified) and a 2% gain for the S&P 500. The 12-month yield on these funds is more than double that of the S&P. SteelPath has been a key beneficiary of MLPs' newfound popularity. Its existing three funds took in almost $1 billion last year.