Vanguard Announces Changes To Managed Payout Fund

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Feb 28, 2020, 09:30 ET

VALLEY FORGE, Pa., Feb. 28, 2020 /PRNewswire/ -- Vanguard today announced forthcoming changes to Vanguard Managed Payout Fund, including renaming it Vanguard Managed Allocation Fund, adding a new portfolio manager, and eliminating monthly payouts in favor 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," said 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%. The fund has attracted a modest asset base ($1.9 billion) and many shareholders do not utilize 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.

Fund composition unchanged
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% of its assets in stocks, 23% in bonds, and 25% in alternatives.

The fund is expected to retain an expense ratio of 0.32%, making the fund one of the lowest-cost options in the $308.6 billion U.S. World Allocation Morningstar category.¹

Broadening the fund's appeal
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 organizations, including endowments and foundations, may employ the multi-asset portfolio to pursue spending policy objectives or other operational revenue needs. Financial advisors can utilize 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.

Experienced investment advisor and managers
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 $44.5 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. Mr. 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 M.S. in finance from Boston College, and an M.B.A. 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 B.S. from Beijing University, an M.S. in geophysics from UCLA, and an M.B.A. from the Fuqua School of Business, Duke University. He also holds the Financial Risk Manager designation.

About Vanguard
Vanguard is one of the world's largest investment management companies. As of January 31, 2019, Vanguard managed $6.2 trillion in global assets. The firm, headquartered in Valley Forge, Pennsylvania, offers 425 funds to its more than 30 million investors worldwide. For more information, visit vanguard.com.

¹ Source: Morningstar, January 31, 2020.

All data is as of January 31, 2020, unless otherwise noted.

All investing is subject to risk, including the possible loss of the money you invest.

For more information about Vanguard funds, visit vanguard.com or call 800-662-7447 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.

Vanguard Managed Payout Fund isn't guaranteed to achieve its investment objectives and is subject to loss. An investment in the fund could lose money over short, intermediate, or even long periods of time because the fund allocates its assets worldwide across different asset classes and investments with specific risk and return characteristics. Diversification doesn't ensure a profit or protect against a loss in a declining market. The fund is proportionately subject to the risks associated with its underlying funds, which may invest in stocks (including stocks issued by REITs), bonds, cash, inflation-linked investments, commodity-linked investments, long/short market neutral investments, and leveraged absolute return investments.

The Managed Payout Fund may not be appropriate for all investors. For example, depending on the time horizon, retirement income needs, and tax bracket, an investment in the fund might not be appropriate for younger investors not currently in retirement, for investors under age 59½ who may hold the fund in an IRA or other tax-advantaged account, or for participants in employer-sponsored plans. Investors who hold the fund within a tax-advantaged retirement account should consult their tax advisors to discuss tax consequences that could result if payments are distributed from their account prior to age 59½ or if they plan to use the fund, in whole or in part, to meet their required minimum distribution (RMD) obligations. Distributions from the fund are unlikely to precisely match an investor's IRA RMD obligations. In addition, use of the fund may be restricted in employer-sponsored plans by the terms of the governing plan documents and/or at the discretion of the plan administrator. Review the information carefully with your financial advisor before deciding whether the fund is right for you.

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