Vanguard To Streamline Fund Lineup With Planned Mergers

etf-news7Vanguard plans to streamline its investment offerings by merging five funds, including two index funds, an actively managed growth fund, and two retirement income funds.

“Vanguard Increases Access to Admiral Shares to Bring Lower Costs to More Clients”

“Over the past five years, we have moved to simplify our funds and our overall fund lineup. In a continuation of that effort, we have decided to merge a handful of funds that have similar objectives and strategies,” said Vanguard CEO Bill McNabb. He noted that Vanguard, in a related announcement, is paring the number of its fund share-class offerings (see press release titled “Vanguard Increases Access to Admiral Shares to Bring Lower Costs to More Clients”).

The planned mergers, which are expected to take place over the next several months, are summarized below:

Vanguard plans to merge the $16.3 billion Vanguard Developed Markets Index Fund with the $18.4 billion Vanguard Tax-Managed International Fund. The funds share similar holdings and seek to track the same benchmark—the FTSE Developed ex North America Index. The merged fund—to be named Vanguard Developed Markets Index Fund—will offer Investor, Admiral™, Institutional, Institutional Plus, and ETF Shares.

Two funds that seek to track the Standard & Poor’s 500 Index will also be merged. The $3 billion Vanguard Tax-Managed Growth and Income Fund will be merged with the $143 billion Vanguard 500 Index Fund. Shareholders of the Tax-Managed Growth and Income Fund will benefit from the lower expense ratio (0.05%) of the Admiral Shares of the 500 Index Fund.

A merger of the $738 million Vanguard Growth Equity Fund and the $4.4 billion Vanguard U.S. Growth Fund is also planned. The two actively managed large-capitalization growth funds seek to provide long-term capital appreciation and employ a fundamental stock-selection process that emphasizes stocks with strong earnings potential. Both also utilize a multi-manager structure. Following the merger, the U.S. Growth Fund will retain its current advisors (Delaware Investments Fund Advisers, Wellington Management Company, LLP, and William Blair & Company L.L.C.) and will add Baillie Gifford Overseas Ltd. and Jennison Associates LLC from the former Growth Equity Fund.

Shareholders of the Growth Equity Fund will experience a reduction in annual costs following the merger, as the expense ratio of their current fund is 0.54%, compared with the 0.45% expense ratio of Investor Shares and the 0.31% expense ratio of Admiral Shares of the U.S. Growth Fund.

The three portfolios of the Vanguard Managed Payout Fund series will also be consolidated into a single fund. Two funds—the $804 millionVanguard Managed Payout Distribution Focus Fund and the $110 million Vanguard Managed Payout Growth Focus Fund—will merge into the $531 million Vanguard Managed Payout Growth and Distribution Fund, which will be renamed Vanguard Managed Payout Fund.

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