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Soft Closes for Large Vanguard, Oppenheimer Funds

Manager changes at MFS and Pioneer, Lord Abbett to merge away its small-blend fund, and Alger hires three former members of Allianz's international equity team.

Morningstar Fund Analysts, 03/07/2013

Over the past week, Vanguard and Oppenheimer have announced soft closes of their funds, continuing a trend that has been occurring in some of their categories.

Vanguard Wellington and Vanguard Intermediate-Term Tax-Exempt Close to New Institutional and Advisor Accounts
Vanguard announced immediate soft closes of Gold-rated Vanguard Wellington VWELX and Silver-rated Vanguard Intermediate-Term Tax-Exempt VWITX. Going forward, advisors, institutions, and individual investors who transact through third-party platforms (such as Charles Schwab or TD Ameritrade) will not be able to open new accounts, although they will be able to add to existing accounts. Still, individual investors who don't have an account aren't out of luck: both funds will remain open to those buying directly through Vanguard. Vanguard Wellington received roughly $1.3 billion in inflows for the year to date through Feb. 28, 2013, and at $69 billion, it's the second-largest fund in the moderate-allocation category. Vanguard Intermediate Term Tax-Exempt received net year-to-date inflows of about $800 million. At $39 billion, it's nearly 4 times larger than the next-largest competitor in the national municipal intermediate-term category.

Oppenheimer Developing Markets to Soft Close on April 12
Meanwhile, Silver-rated emerging-markets fund Oppenheimer Developing Markets ODMAX took in $5 billion in 2012, making it the most popular fund in its category last year and securing its spot as the largest actively managed fund in the group at $33 billion. (The largest emerging-markets fund is still Vanguard Emerging Markets Stock Index VEIEX, which has $60 billion in assets under management.) It's no wonder the Oppenheimer fund has been so popular. It has achieved excellent risk-adjusted results since manager Justin Leverenz took over in 2007, with its returns landing in the category's top decile over the three- and five-year trailing periods.

Now Oppenheimer has announced plans to undergo a soft close of the fund, effective April 12. Oppenheimer's decision to slow inflows at this fund comes on the heels of a couple other sensible fund closures in the emerging-markets space. Since the start of this year, Virtus Emerging Markets Opportunities HEMZX and Aberdeen Emerging Markets GEGAX, both sizable funds in this category, closed their doors to new investors.

MFS Announces Several Manager Changes
MFS announced several portfolio manager changes that will become effective April 2013. Jonathan Sage will be joining the portfolio management team at Bronze-rated MFS Total Return MSFRX in April 2013. The balanced fund, which divides its assets into 60% equities and 40% bonds, will allocate Sage to one third of the equity portfolio, or 20% of the overall fund's assets. Sage will focus on building a portfolio with a yield greater than the S&P 500 Index, similarly to his process at MFS Equity Income EQNAX. That fund only launched in September 2012, although Sage has a longer tenure working on the equity sleeves of MFS Blended Research Core Equity MUEAX and MFS Diversified Income DIFAX, which he joined in March 2005 and May 2006, respectively.

In addition, Ward Brown will be added as comanager of MFS Strategic Income MFIOX and MFS Diversified Income. Brown will work with comanager Matthew Ryan on the emerging-markets debt portion of the funds, and the two comanagers have experience collaborating on Bronze-rated MFS Emerging Markets Debt A MEDAX and MFS Emerging Markets Debt Local Currency EMLAX.

Finally, Robert Persons will transition off of Silver-rated MFS Utilities MMUFX, with since-inception manager Maura Shaughnessy remaining. Persons joined Shaughnessy in 2005 and helped with the selection of fixed-income securities, although the fund has held a negligible about of bonds in recent years.

Lord Abbett Small Cap Blend to Merge Away
As reported last week, Michael T. Smith, longtime manager of $700 million Lord Abbett Small Cap Blend LSBAX left the firm effective Feb. 21, 2013, primarily due to performance concerns. Lord Abbett's director of domestic-equity portfolio management Bob Fetch is managing the fund in the interim, but the firm's board now has approved a proposal to merge Small Cap Blend into Neutral-rated  Lord Abbett Value Opportunities LVOAX. There are some material differences between the two funds, as Small Cap Blend focuses exclusively on small-cap companies and employs growth and value investing styles, while Value Opportunities invests in companies of all sizes and takes a more value-oriented approach. As such, the board also approved a proposal to make Neutral-rated Lord Abbett Small Cap Value LRSCX and Bronze-rated Lord Abbett Developing Growth LAGWX, pure small-cap funds that are currently closed to new investors, available for purchase through a special exchange by current shareholders of Small Cap Blend. Shareholders are expected to vote on the proposed merger in July of 2013.

Morningstar fund analysts cover more than 1,700 mutual funds and write regular commentary covering fund industry news, fund investing trends, picks, portfolio planning, international investing, and more.
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