Vanguard has announced a number of changes to the Vanguard Managed Payout Fund, including renaming it Vanguard Managed Allocation Fund, adding a new portfolio manager, and eliminating monthly payouts in favour of an annual distribution. The change to the portfolio management team is effective immediately; the investment objective and principal investment strategy will be changed in the second quarter to reflect the cessation of monthly payments. The last payment will be made in May.
The fund’s structure, composition, and investment advisor will not change. The fund will continue to offer a broadly diversified portfolio of equities, fixed income, commodity-linked investments, and alternative investments by investing in multiple Vanguard funds through an actively-managed asset allocation process. Vanguard Quantitative Equity Group (QEG), the firm’s internal active fund advisory arm, will continue to manage the fund.
“Vanguard Managed Allocation Fund provides investors with a sophisticated, actively-managed, endowment-like portfolio at a low cost,” says Matt Brancato, head of Vanguard’s Portfolio Review Department. “The fund remains an appealing option for individual investors seeking long-term capital appreciation and moderate income as a complement to their retirement strategy.”
Introduced in 2008, Vanguard offered three managed payout portfolios designed to supplement an investor’s income stream in retirement, with each portfolio featuring specific payout and principal objectives. In 2014, the portfolios were merged into a single Managed Payout Fund with an annual target distribution rate of 4 per cent. The fund has attracted a modest asset base (USD1.9 billion) and many shareholders do not utilise the monthly payout feature, choosing instead to reinvest a large amount of their distribution.
The last scheduled monthly payout will occur in May. Going forward, investors seeking a regular stream of cash distributions can establish an automatic withdrawal plan stipulating a specified amount of their fund shares to be redeemed monthly or at a regular interval of their choosing.
Vanguard Managed Allocation Fund will continue to invest in a diversified portfolio of Vanguard funds, including but not limited to: Vanguard Total International Stock Index Fund, Vanguard Alternative Strategies Fund, Vanguard Total Bond Market II Index Fund, Vanguard Total Stock Market Index Fund, Vanguard Global Minimum Volatility Fund, Vanguard Commodity Strategy Fund, Vanguard Total International Bond Index Fund, Vanguard Ultra-Short-Term Bond Fund, Vanguard Value Index Fund, Vanguard Market Neutral Fund, and Vanguard Emerging Markets Stock Index Fund. The fund currently invests 52 per cent of its assets in stocks, 23 per cent in bonds, and 25 per cent in alternatives.
The fund is expected to retain an expense ratio of 0.32 per cent, making the fund one of the lowest-cost options in the USD308.6 billion U.S. World Allocation Morningstar category.
By eliminating the payout feature, the fund can be offered to a broader investor base beyond retail investors, including institutional investors, financial advisors, and corporate retirement plan sponsors. Non-profit organisations, including endowments and foundations, may employ the multi-asset portfolio to pursue spending policy objectives or other operational revenue needs. Financial advisors can utilise the fund as an element in a broader retirement income program. Plan sponsors may find the fund attractive as part of an in-plan retirement income solution.
Vanguard’s Quantitative Equity Group was created in 1991 and applies risk-controlled, cost-effective processes to multiple strategies, including traditional alpha, factors, and liquid alternatives. The QEG team is comprised of 37 professionals spanning portfolio management, strategists, and analysts, and manages more than USD44.5 billion in assets under management across 40 mandates.
To further align the oversight of Vanguard’s alternative investment products, Fei Xu will join Anatoly Shtekhman as co-portfolio manager for the Fund, replacing John Ameriks. Ameriks will remain head of Vanguard’s QEG team. Together, Messrs. Xu and Shtekhman also manage Vanguard Alternative Strategies Fund and Vanguard Commodity Strategy Fund and will bring their expertise in alternative investments to Vanguard Managed Allocation Fund.
Anatoly Shtekhman, CFA, is a portfolio manager at Vanguard. He has been with Vanguard for 13 years, has managed investment portfolios since 2016, and has co-managed the fund since 2016. He earned a B.S. in mathematics from the University of Scranton, an MS in finance from Boston College, and an MBA from the Wharton School of the University of Pennsylvania.
Fei Xu, CFA, a portfolio manager at Vanguard. He has been with Vanguard for 16 years. He received a BS from Beijing University, an MS in geophysics from UCLA, and an MBA from the Fuqua School of Business, Duke University. He also holds the Financial Risk Manager designation.