In a typical move, Vanguard announced it is once again muddying the waters of a good stock fund by adding yet a third management team to Vanguard Selected Value (VASVX), an $8.5 billion mid-cap fund that performed worse under two managers than under one, and presumably will not see any improvement under three.
In fact, saying the fund has only three managers actually isn’t correct—Selected Value will now have three management teams, composed of seven different portfolio managers, running the show. If anyone says Vanguard doesn’t care how big it gets, that’s hogwash. If there were capacity problems, they could have closed this fund, but instead they are simply layering on another manager to allow them to keep the cash flowing in.
Of course, with only one Vanguard director owning shares in the fund (Peter Volanakis reportedly owned more than $100,000 worth at year-end; neither Chairman McNabb nor any of the other nine directors owned any), this may not cut as close to the board’s interests as shareholders might have hoped.
Pzena Investment Management is going to be building a portfolio from some of the fund’s current 5.8% cash stake, as well as “a portion of new cash flow over time.” Selected Value is one of the few active funds at Vanguard that has had consistent cash inflows over the last year, with about $1.9 billion of net new cash coming in over the past 12 months.
Considering that Pzena won’t be making too much trouble with the fund in the early going given the firm’s small initial stake, I’m not as concerned here as I would be if Vanguard had handed over a large chunk of Selected Value’s assets. And this isn’t the last time you’ll see changes at Selected Value, as Jim Barrow, 73, begins stepping further away from this fund as he has at Vanguard Windsor II Fund (VWNFX), and handing the reins over to co-manager Mark Giambrone.
I’m a fan of both Barrow and Giambrone, but I’m less than happy about Vanguard’s continued meddling with the last few great active funds in its family. Maybe if some of the directors owned shares in Selected Value, they’d see it my way.
Senior Editor Dan Wiener and Editor/Research Director Jeffrey DeMaso publish The Independent Adviser for Vanguard Investors, a monthly newsletter that keeps abreast of recent developments at Vanguard, and the annual FFSA Independent Guide to the Vanguard Funds.
