Author Topic: Vanguard Dividend Growth Fund Closes To New Investors  (Read 3122 times)

LuckyOwl

  • 5 O'Clock Shadow
  • *
  • Posts: 10
Vanguard Dividend Growth Fund Closes To New Investors
« on: July 28, 2016, 10:44:23 AM »
Apparently there was too much cash flowing into the fund recently.

https://personal.vanguard.com/us/insights/article/fund-announcement-072016

MichaelB

  • Stubble
  • **
  • Posts: 128
  • Age: 32
  • Location: Charlotte, NC
  • FIRE goal: April 2032
Re: Vanguard Dividend Growth Fund Closes To New Investors
« Reply #1 on: July 28, 2016, 03:15:42 PM »
Vanguard will do this with their actively managed funds when their inflows get so high that they're concerned it will affect performance. The Primecap, Primecap Core, and Capital Opportunity Funds are also closed. To my knowledge, they never close any of their index funds.

Incidentally, if anyone was looking at this fund, a good replacement would be VDAIX, their Dividend Appreciation Index fund.

RFAAOATB

  • Pencil Stache
  • ****
  • Posts: 563
Re: Vanguard Dividend Growth Fund Closes To New Investors
« Reply #2 on: July 29, 2016, 09:32:41 AM »
What is the simple explanation for how more money in a fund could negatively affect performance?  Why wouldn't the growth rate be the same whether the fund had 10 million or 10 billion in there?

JumpInTheFIRE

  • 5 O'Clock Shadow
  • *
  • Posts: 94
Re: Vanguard Dividend Growth Fund Closes To New Investors
« Reply #3 on: July 29, 2016, 10:00:09 AM »
What is the simple explanation for how more money in a fund could negatively affect performance?  Why wouldn't the growth rate be the same whether the fund had 10 million or 10 billion in there?

Because once you get too big (assuming a fairly focused fund, not a broad fund like an index) then you start to affect the stock price when you buy or sell because you are trading large quantities of the stock.  Maybe this guy can explain it better than me (random site, first google result for "mutual fund bloat"):

http://investorplace.com/2014/08/mutual-funds-asset-bloat/#.V5t8zt9vGJE


englishteacheralex

  • Handlebar Stache
  • *****
  • Posts: 1731
  • Age: 39
  • Location: Honolulu, HI
Re: Vanguard Dividend Growth Fund Closes To New Investors
« Reply #4 on: July 29, 2016, 07:50:08 PM »
I invested $5500 in this a couple of years ago because I thought dividends were interesting. Haven't touched it or added to it since then. I'm wondering what the implications of this are, and if I should buy some more of it.


SwordGuy

  • Walrus Stache
  • *******
  • Posts: 5024
  • Location: Fayetteville, NC
    • Flipping Fayetteville
Re: Vanguard Dividend Growth Fund Closes To New Investors
« Reply #5 on: July 29, 2016, 10:51:07 PM »
Well, I'm glad I decided to buy in last March!  (Though from the article posted earlier, maybe I shouldn't be...)

I think I'll just stay the course and see where it ends up.


beastykato

  • Stubble
  • **
  • Posts: 136
  • Location: Pennsylvania
Re: Vanguard Dividend Growth Fund Closes To New Investors
« Reply #6 on: July 30, 2016, 04:45:31 AM »
I would definitely not be worried about being in that fund.  It's comprised of a majority of the best companies in the world.  There is a reason people are rushing to it.  Kinda sad I don't own any of it. 
« Last Edit: July 30, 2016, 05:00:52 AM by beastykato »

Davids

  • Pencil Stache
  • ****
  • Posts: 973
  • Location: Somewhere in the USA.
Re: Vanguard Dividend Growth Fund Closes To New Investors
« Reply #7 on: July 30, 2016, 01:51:25 PM »
I have some bones in VIG, Vanguard Dividend Appreciation ETF. That is a solid ETF and good alternative for those who are shut out.

Indexer

  • Handlebar Stache
  • *****
  • Posts: 1338
Re: Vanguard Dividend Growth Fund Closes To New Investors
« Reply #8 on: July 31, 2016, 11:18:37 AM »
What is the simple explanation for how more money in a fund could negatively affect performance?  Why wouldn't the growth rate be the same whether the fund had 10 million or 10 billion in there?

Lets say I'm the smartest manager in the world. I want to buy Tesla. I think it will go up 50%. If I put 10 million into Tesla I barely move the stock price, and when it goes up 50% I can cash out and make a killing.

 The current value is 34 billion. If I put 10 billion into Tesla I just increased its value by 29.4%!!!! I'll also own 22.7% of the company(10/44 billion).

If it goes up by 50% that isn't a 50% gain for me because I pushed the price up 29.4%. From where I bought it, 44 billion, to where I sold it, 51 billion, is only a 15.9% gain. Oh wait, when I sell my 22.7% ownership I'm going to force the stock price down so I'll be lucky if I even get a 5% gain. The stock wouldn't work exactly like that but I hope this helps it make sense.

The other option for a manager is to try to find other stocks. Instead of putting so much in Tesla I could also buy Facebook. I don't think it will go up 50%, only 30%, so I'm giving up some return there. If I continue this thought process forever I eventually end up owning hundreds of stocks that are probably mediocre in my eye. Eventually it will own most of, if not all, of the holdings in its benchmark. Here is an example, the Growth Fund of America, once a fund that did pretty well compared to its benchmark, now owns about 250 stocks. It is a large cap stock fund, Vanguard's large cap growth index fund has 330 stocks. The Growth fund of America owns most of its index. In the industry this is called a closet index fund. It owns most of the index, but because of its higher fees it will almost always underperform its index. Growth fund of America has underperformed the Vanguard Growth index fund over 1, 3, 5, and 10 year time frames.

See, more money managed makes it harder for a manager to knock it out of the park because anytime they buy a stock they are moving that stock a lot.

OneCoolCat

  • Bristles
  • ***
  • Posts: 436
  • Age: 32
  • Location: SoFla
Re: Vanguard Dividend Growth Fund Closes To New Investors
« Reply #9 on: July 31, 2016, 02:20:21 PM »
What is the simple explanation for how more money in a fund could negatively affect performance?  Why wouldn't the growth rate be the same whether the fund had 10 million or 10 billion in there?

Lets say I'm the smartest manager in the world. I want to buy Tesla. I think it will go up 50%. If I put 10 million into Tesla I barely move the stock price, and when it goes up 50% I can cash out and make a killing.

 The current value is 34 billion. If I put 10 billion into Tesla I just increased its value by 29.4%!!!! I'll also own 22.7% of the company(10/44 billion).

If it goes up by 50% that isn't a 50% gain for me because I pushed the price up 29.4%. From where I bought it, 44 billion, to where I sold it, 51 billion, is only a 15.9% gain. Oh wait, when I sell my 22.7% ownership I'm going to force the stock price down so I'll be lucky if I even get a 5% gain. The stock wouldn't work exactly like that but I hope this helps it make sense.

The other option for a manager is to try to find other stocks. Instead of putting so much in Tesla I could also buy Facebook. I don't think it will go up 50%, only 30%, so I'm giving up some return there. If I continue this thought process forever I eventually end up owning hundreds of stocks that are probably mediocre in my eye. Eventually it will own most of, if not all, of the holdings in its benchmark. Here is an example, the Growth Fund of America, once a fund that did pretty well compared to its benchmark, now owns about 250 stocks. It is a large cap stock fund, Vanguard's large cap growth index fund has 330 stocks. The Growth fund of America owns most of its index. In the industry this is called a closet index fund. It owns most of the index, but because of its higher fees it will almost always underperform its index. Growth fund of America has underperformed the Vanguard Growth index fund over 1, 3, 5, and 10 year time frames.

See, more money managed makes it harder for a manager to knock it out of the park because anytime they buy a stock they are moving that stock a lot.

Fantastic post!

money_maniac

  • 5 O'Clock Shadow
  • *
  • Posts: 16
Re: Vanguard Dividend Growth Fund Closes To New Investors
« Reply #10 on: August 01, 2016, 12:12:49 AM »

 The current value is 34 billion. If I put 10 billion into Tesla I just increased its value by 29.4%!!!! I'll also own 22.7% of the company(10/44 billion).


Your post and argument is predicated on the above quote which isn't even close to how the equity markets work. You don't increase the value and/or market cap of a company by the corresponding amount of money you invested in it. Even if we momentarily disregard that fallacy and continue with your argument, scooping up 30% of a company's shares is virtually impossible anyway since it will vastly exceed the public free float. Closing funds is done so that the manager can operate with more stealth. The combined market cap of the S&P 500 is something like $20 trillion with an average component market cap of $40 Billion. The largest actively managed funds in the world still wouldn't be able to buy more than a fraction of the avg S&P component even if they used every last dollar under management.