Vanguard Closes Last Primecap-Managed Fund

 Vanguard Primecap Core (VPCCX) has closed to most new investors. Now all three Vanguard funds subadvised by the redoubtable Primecap Management Company are shuttered.

Existing investors and participants in defined contribution plans, such as 401(k)s and Vanguard Flagship Services clients (those with more than $1 million in Vanguard mutual funds), can still buy Primecap Core, but no one else, not even financial advisors and institutional investors, can. To further curtail cash flow in to the fund and the subadvisor overall, Vanguard also imposed a $25,000 annual share purchase limit for current investors on all three Primecap-managed funds: Primecap Core,  Capital Opportunity (VHCAX) and  Primecap (VPMCX). The latter two have been closed to new investors for some time.

The Primecap-managed funds have been among the few offerings in Vanguard's stable and the mutual fund industry overall to have done relatively well in the crash of 2008 and early 2009, as well as in the market's recent rebound. From the Oct. 9, 2007, market peak to its March 9, 2009, trough, Primecap and Primecap Core lost 36.2% and 36.8%, respectively, while the Russell 1000 Growth Index and the typical large-growth fund lost 39.1% and 40.9%, respectively. Capital Opportunity, which owns more small-cap stocks than its siblings, shed 41.1%. From March 9 through the end of July of this year, however, the three funds' returns have beaten the benchmark and category average, gaining between 48.2% and nearly 54%.

That combination of relative downside protection and upside participation is rare (as are the funds' superior long-term results) and investors have noticed. In the year ended July 31, Primecap Core took in an estimated $796 million in net new investments, or about 23% of its asset base at the start of the period, according to Morningstar fund flow data. Primecap and Capital Opportunity have seen small estimated net outflows of $171 million and $57 million in that time period. But Primecap's own Odyssey Funds took in $184 million in new cash in the 12 months ended in July, according to Morningstar data.

All told, Primecap had an estimated $38 billion in mutual fund assets under management and more than $15 billion in separate account assets for a total of more than $53 billion, not accounting any of the firm's institutional accounts, according to Morningstar data.

Primecap and Vanguard have always been cognizant of the deleterious affect hot cash flows and large asset bases can have on investment performance. So, Primecap Core's closure and restrictions are consistent and should help keep new money from swamping the management team's fundamentally oriented, long-term-focused, contrarian growth strategy.

Investors who missed the chance to invest in one of Vanguard's Primecap subadvised funds can still gain access to one of Primecap's own Odyssey funds:  Odyssey Aggressive Growth (POAGX),  Odyssey Growth (POGRX), and  Odyssey Stock (POSKX). You have to go directly to Primecap or to another brokerage, such as  Charles Schwab (SCHW), to buy the Odyssey funds, which are slightly more expensive than their Vanguard counterparts, but they're still a good deal.