Skip to Content
Market Update

Vanguard Health Care Available Again

The industry's largest health-care fund will reopen its doors to new shareholders.

Vanguard is reopening the $11 billion Vanguard Health Care (VGHCX) fund to new shareholders on December 20, 1999.

When Vanguard shut the fund's doors 10 months ago, they deemed it a "cooling-off period." The decision to close the fund was a good one. Manager Ed Owens had been bombarded with cash in the months prior to the fund's closure. In 1998 alone, the fund's asset base more than doubled from $4.5 billion to $9.3 billion.

The closure was designed as much to stem outflows as it was to curb inflows. Sector-fund investors can be extremely fickle--piling in when an industry is hot and then tearing out again when its fortunes cool.

Such market-timing activity is particularly unwelcome at Vanguard Health Care. Owens uses a slow moving, low-turnover investment approach that might have been compromised if he had been faced with massive redemptions. The decision to close the fund was particularly timely given that the health-care sector proved to be weak in 1999.

Even though the fund has reopened, Vanguard is still trying to discourage market timing. The firm significantly raised the minimum initial investment to $10,000 from $3,000. The fund also maintains a 1% redemption fee on the sale of any shares held less than five years--an extremely long time in the world of sector investing.

The question now is: How will the fund fare if it continues to see inflows? Thus far, Owens--who has a superb record--hasn't missed a beat. But given that this is the largest sector fund in the industry, Owens is sailing in uncharted waters.