The moves are aimed at simplifying investing and lowering costs. These changes offer a win-win scenario for Vanguard investors.
Today, Vanguard announced an array of changes that will make it cheaper to invest with the firm. It's also merging away five funds. Click here to see Vanguard's press release.
The passively managed $20.8 billion Vanguard Dividend Appreciation Index VDAIX will have new Admiral shares with a 0.10% expense ratio and a $10,000 minimum investment. That's a welcome savings on a fund currently charging 0.20% for the Investor share class. The Admiral shares will be available in December.
At eight funds, Vanguard will rename Signal shares as Admiral shares and will lower the minimum investment to $10,000 from $100,000. Seven of the eight funds are bond index funds like the $411 million Vanguard Mortgage-Backed Securities Index VMBSX. The eighth is the $1.3 billion Vanguard Global ex-US Real Estate Index VGRLX.
Vanguard plans to merge two of its tax-managed funds into very similar index funds. Vanguard Tax-Managed International VTMNX will merge into Vanguard Developed Markets Index VDMIX and Vanguard Tax-Managed Growth & Income VTMIX will merge into Vanguard 500 Index VFINX. In both cases the funds tracked the same index. All four funds have a Morningstar Analyst rating of Gold. It's understandable that Vanguard would make this change, as it has become adept at avoiding capital gains payouts in its index funds and likely doesn't need the added flexibility of the tax-managed strategies.
A third merger features a combination of mediocre actively managed large-growth funds. The unrated Vanguard Growth Equity VGEQX will merge into Neutral-rated Vanguard US Growth VWUSX. Vanguard Growth Equity won't go down in the books as a great success story. An investor who bought when Vanguard adopted the fund in June 2000 would be about 17% in the red today. Vanguard US Growth will retain its subadvisors and add Jennison and Baillie Gifford from Growth Equity. US Growth has been a decent performer in the two and a half years since hiring its current managers, but that's a very short record.
Finally, Vanguard will merge two of its managed-payout funds, Bronze-rated Vanguard Managed Payout Distribution Focus VPDFX and Bronze-rated Vanguard Managed Payout Growth Focus VPGFX, into a third (and then only) managed-payout option, which will be renamed Vanguard Managed Payout Fund. At the same time, Vanguard will lower that fund's targeted distribution level to 4% from 5%.
Vanguard is also paring back some purchase and redemption fees at three index funds. Silver-rated Vanguard FTSE All-World ex-US Small-Cap Index VFSVX charges 0.50% at the time of purchase and another 0.50% when an investor sells. Those fees are coming down to 0.25%, coming and going.
Vanguard Short-Term Corporate Bond Index VSCSX will drop its 0.25% purchase fee so there's no fee on either end.