Vanguard Reopens Dividend Fund, Will Sell Alts Fund through Brokers
Vanguard Group on Thursday reopened its actively managed Dividend Growth fund to new investors, and said it will begin selling an “alternative strategies” fund sold directly to institutional investors through advisor channels next quarter.
The fund, which invests in stalwart dividend payers such as McDonald’s, Johnson & Johnson and Medtronic, has low turnover, a 0.22% expense ratio and has “consistently outperformed” equity income mutual fund peers on a one-, three-, five- and ten-year total return basis, said Todd Rosenbluth, director of mutual fund and ETF research at investment research firm CFRA.
Run since 1996 by portfolio manager Don Kilbride, the dividend fund has a 13.8% three-year return.
Investors have steadily withdrawn money from the Dividend Growth fund since its closing, as they have done for many active funds that are more expensive than the firm’s hugely successful index funds, according to Daniel Wiener, a registered investment adviser who writes a newsletter for Vanguard investors.
“It’s one of the best active funds in Vanguard’s stable,” he wrote after the reopening was announced, but cautioned that “all bets are off” if the company has to add portfolio managers to deal with an inflow of cash.
“[F]ollowing consultation with the fund’s advisor, we’re confident that there is ample capacity to reopen the fund,” Matthew Brancato, head of Vanguard’s portfolio review department said in an e-mail.
Vanguard on Thursday also said it will reopen its $316.3 million-asset Vanguard Alternative Strategies fund in the fourth quarter, and expand its distribution channels.
The alts fund, one of three offered by the asset management giant, is currently available to pension plans and endowments in Vanguard’s institutional advisory services program. It is also an underlying holding of Vanguard Managed Payout, a $1.8 billion fund of funds.
Vanguard next quarter will lower the minimum investment on the alts fund to $50,000 from $250,000, and sell it through financial advisors as well as directly to Vanguard Investments’ brokerage and robo-advisory clients.
Vanguard is one of the few fund companies that refuses to pay distribution fees to broker-dealers for putting its funds on their platforms and promoting them to their brokers. Morgan Stanley, which charges $250,000 to $850,000 to funds utilizing its sales prowess, retaliated two years ago by pulling Vanguard funds from its platform.
The Alternative Strategies fund, co-managed by Anatoly Shtekhman and Fei Xu, has returned 3.52% over its four-year lifespan. Its three-year return of 1.72% underperformed the 5.53% of its benchmark (3-month Treasury bills plus 4.0%), according to Vanguard.