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Vanguard closes high-yield corporate fund

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Vanguard is closing its High-Yield Corporate Fund to most new accounts, effectively immediately, in an effort to curtail strong cash inflows. The fund, which is the industry’s third largest high-yield corporate bond fund and holds USD16.9 billion in net assets, has experienced cash flow totalling USD2 billion over the past six months.

“In this prolonged low-rate environment, we continue to see investors turn to high-yielding alternatives— including money market fund holders moving to bond funds, US Treasury bond fund holders moving to high-yield corporate funds, and bond fund holders moving to dividend-paying stock funds. And we’ve cautioned investors accordingly about reaching for yield,” says Vanguard CEO Bill McNabb. “The flows into the High-Yield Corporate Fund have been particularly acute, so says are taking these proactive steps to preserve the ability of the advisor to manage the fund effectively and protect the interests of existing shareholders.”

The fund’s investment advisor is Wellington Management Company LLP, which has managed the fund since its inception in 1978.

This marks the second time that Vanguard has closed the fund. In June 2003, the fund was closed after receiving USD1.4 billion in net cash flow in the first five months of the year. It was reopened in December 2003 after investor interest and cash flow had subsided.

Existing fund shareholders may continue to make additional purchases without limit. Vanguard will continue to monitor cash flows and take additional steps if needed to limit the size of the fund.
 

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