Fund Times: Vanguard Gets Cheaper
Plus, news on Tweedy, Browne, Delaware, Alliance, and more.
Effective May 10, 2005, Vanguard will lower the access point into its admiral share class on 63 funds. Shareholders with an account balance greater than $100,000 in any Vanguard fund will automatically be moved into the admiral shares in July. Account holders who have been with Vanguard for at least 10 years and have more than $50,000 in a Vanguard fund will also convert to the Admiral shares (provided that they're registered at Vanguard.com). Under the previous setup, fundholders needed to maintain a fund balance of more than $250,000 (or $150,000 balance over three years) to qualify for the cheaper admiral shares.
This change is a big positive for shareholders. Instead of monkeying around with one-time, revocable fee waivers, Vanguard instead went with a solution that, after it's in place, will prove more difficult to change going forward.
Vanguard is already an at-cost provider, so it can't respond to companies like Fidelity by further lowering fees ad hoc. The firm is instead using its heft to bend the cost of servicing larger accounts, which are more cost-efficient to begin with. We hope that this trend continues, and that more and more companies compete on cost.
Tweedy, Browne Does Right by Shareholders
Tweedy, Browne announced April 15 that the $6.7 billion Tweedy, Browne Global Value (TBGVX) and the $660 million Tweedy, Browne American Value (TWEBX) would close to new investors on May 4, 2005. The firm also said it would close its similarly run separate accounts to new investors.
In a press release, Chris Browne, who has been a comanager on both funds since their 1993 inceptions, said that he and comanagers Will Browne and John Spears haven't been able to find enough stocks selling at attractive discounts to the team's intrinsic-value estimates. He added that certain holdings of both funds have risen to levels of full value, which has resulted in both funds being net sellers of securities.
We think the closing of both the retail and institutional channels speaks to the shareholder-friendliness of the firm, as does its motive for closing. After all, most funds close for size reasons, but the managers here are trying to prevent any dilution of returns to existing shareholders.
Current shareholders of either fund may continue to invest in the fund, including through reinvestment of distributions. When operationally feasible, investors may open new accounts and add to existing accounts. Special consideration will be made for financial advisors with clients in either fund, as well as participants in retirement plans utilizing a fund as an investment option on May 4.
In an SEC filing dated April 15, 2005, Delaware announced that several managers it hired away from Transamerica would run Delaware Diversified Growth (DGDAX) and Delaware Select Growth (DVEAX). Specifically, day-to-day management responsibilities would fall to Jeffrey S. Van Harte (who previously ran Transamerica Large Cap Growth), with comanagers Christopher J. Bonavico, Daniel J. Prislin, and Kenneth F. Broad offering extra support on the funds.
But then, in a surprising turn of events, the firm reversed course in a newer SEC filing dated April 19, 2005. So, for now, the old team, lead by Christopher S. Adams, has responsibility for the Diversified Growth fund, while Delaware Select Growth is still managed by Marshall T. Bassett, Stephen T. Lampe, and Lori P. Wachs. Whatever happened, the filings suggest some internal turmoil within the firm. We would like to see the issues resolved quickly, especially because we do think the Transamerica team has the potential to improve Delaware's growth offerings.
Alliance Found Not Guilty in Florida Case
On April 18, 2005, a jury found Alliance Capital Management not guilty of negligence in the purchase of shares of the now-bankrupt energy trader Enron Corporation. As we wrote when the case was first announced in May 2002, the custodian for Florida's pension fund originally sued Alliance Capital Management to try to recoup losses it suffered with Enron's collapse. The jury decided that Alliance properly applied its investment process in researching Enron.
This represents a big victory for asset managers in general. If the jury had found in favor of the State Board Administration of Florida, others money managers would likely have been taken to court as well. Thousands of investors sustained heavy losses from fraudulent public filings from the likes of Enron, Adelphia (ADELQ), Worldcom, and others.
According to an SEC filing dated April 15, 2005, Royce is set to launch two more "Select" Funds: Royce Select II and Royce Select III, which will both invest in small and micro-cap companies. Both funds will have the same goals and strategies, but will be managed by different people. Charles M. Royce (also manager of Royce Select (RYSFX)) and James Harvey were named comanagers of the Select II fund, and W. Whitney George and Michael Green were named comanagers of the Select III fund.
The West Virginia state attorney office recently filed civil charges with the SEC against Janus Capital Management for market-timing. One year ago this week, Janus settled the original complaint that was filed against it in the summer of 2003 by the SEC, the New York state attorney, and the Colorado state attorney. We don't think this late-to-the-game lawsuit uncovers any new ground from previous investigations, but is a more formalized conclusion to work already done by that state.