Vanguard shuts hot fund to 'cool' its investors
Vanguard has shut its top-performing fund, it says, "to educate investors" that past performance doesn't guarantee future results.
You have a red-hot product. So you take it off the market. Counter-intuitive? Vanguard Group, Malvern, says here:
"Vanguard is implementing a 'cooling off' period for Vanguard Capital Value Fund (VCVLX) by closing it to new shareholder accounts, effective immediately.
"The $742 million Capital Value Fund is Vanguard's top-performing fund in 2009, with a total return of 68.5% through the first nine months of the year (compared with the 21.6% return of the broad U.S. stock market). Assets in the fund have more than tripled since the end of February as a result of market appreciation and strong cash inflows.
"'Despite our efforts – at both a company and an industry level – to educate investors about the perils of performance-chasing, we continue to be concerned about this behavior'," said Vanguard CEO Bill McNabb. "Closing the fund for a cooling-off period serves two purposes. First, it protects existing shareholders from higher transaction costs that can result from short-term-oriented investors moving in and out of the fund. Second, it protects prospective investors from themselves, as high-performing funds will almost certainly drop off at some point.'"
Vanguard posted a statement warning investors from getting too excited, and citing Vanguard Capital Value, earlier this week.