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Vanguard Reopens Capital Opportunity to Individuals

Fund run by the topnotch Primecap team is still closed to institutions and intermediaries.

David Kathman, CFA, 04/03/2013

Vanguard announced on Wednesday morning, April 3, that it is reopening the $8.7 billion Vanguard Capital Opportunity VHCOX to individual investors and removing the $25,000 annual limit on additional purchases. The fund has been closed to all new investors since March 2004, but the board of directors has decided to allow new "personal investors" to have access to the fund, which has seen $2.6 billion in net outflows over the past three years. However, it will remain closed to all financial advisory, institutional, and intermediary clients, other than those who invest through a Vanguard brokerage account.

Vanguard Capital Opportunity has been managed since 1998 by the Primecap team, which has compiled one of the fund industry's best track records over the past 30 years with Vanguard Primecap VPMCX. (Since late 2004 it has also managed Vanguard Primecap Core VPCCX, Primecap Odyssey Growth POGRXPrimecap Odyssey Stock POSKX, and Primecap Odyssey Aggressive Growth POAGX.) Its contrarian growth strategy has also worked very well for Vanguard Capital Opportunity, whose 10-year returns rank in the top 1% of the large-growth category, but it has also made the fund prone to spells of short-term underperformance.

Vanguard Capital Opportunity's most recent dry spell came in 2010 and 2011, when it landed in the category's bottom quartile both years. These problems stemmed largely from big losses by a few prominent holdings, notably Research in Motion BBRY and Cree CREE, though it also didn't help that the portfolio was heavily concentrated in struggling pharma, biotech, and technology names. The managers stuck to their guns, in keeping with their patient, long-term perspective, and that patience has paid off in a big way over the past year. As of April 3, the fund's 22.56% one-year gain is by far the best in the large-growth category. Cree has been one of the biggest contributors, gaining 54% in 2012 and 57% in the first quarter of 2013, and top holding Biogen Idec BIIB has also posted big gains after a key drug approval.

This latest period of blowout performance has only confirmed our high opinion of the fund, which earns the top Morningstar Analyst Rating of Gold. Its reopening will give more individual investors access to this fine large-growth offering, though new investors have already been able to buy the same team's similar but more aggressive Primecap Odyssey Growth.

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David Kathman, CFA, is a senior fund analyst with Morningstar.

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