Thu, 30/08/2007 - 06:57
The Vanguard Group has announced a proposal with Charles Schwab Investment Management to reorganise the Laudus Rosenberg US Large/Mid Capitalization Long/Short Equity Fund into a new Vanguard fund. The USD21m open-end fund, which is a member of Schwab's Laudus family of funds, is sub-advised by Axa Rosenberg Investment Management.
If approved by shareholders of the Laudus Rosenberg Fund at a special shareholders' meeting scheduled for mid-November, the tax-free reorganisation of the fund is expected to be completed by the end of the year.
Vanguard has filed a registration statement with the Securities and Exchange Commission for the Vanguard Market Neutral Fund, a new no-load fund that will seek to provide long-term capital appreciation while limiting exposure to general stock market risk by using a long/short market neutral strategy. Axa Rosenberg will continue to serve as an investment advisor of the reorganised fund, while Vanguard's quantitative equity group will also manage a portion of the fund.
The long/short market-neutral strategy to be employed by the fund is an absolute-return investment approach that seeks performance exceeding the returns of three-month US Treasury bills. Each advisor will independently buy securities it considers to be undervalued and sell short an approximately equal dollar amount of securities deemed overvalued.
The overall return of the fund will depend on the net performance of its long and short positions. The fund's goal is to produce long-term capital appreciation that reflects the quality of the advisors' security selections, with limited correlation to the returns of the US stock market as a whole.
'We view the adoption of the fund as an opportunity to expand our relationship with a respected advisor and bring a new investment strategy to our institutional clients through a relatively low-cost fund with an established track record,' says Vanguard chief executive Jack Brennan.
In June, Vanguard added Axa Rosenberg to the advisory teams of the USD12bn Vanguard Explorer Fund and the USD1.4bn Vanguard U.S. Value Fund. Axa Rosenberg manages 12 per cent of the Explorer Fund and 50 per cent of the U.S. Value Fund.
Vanguard expects the new Market Neutral Fund to appeal primarily to institutional investors, particularly endowments and foundations. The fund will require minimum initial investments of USD250,000 for investor shares and USD5 million for institutional shares.
'We have considerably expanded our product offerings and advisory services to institutional clients over the past several years,' says Brennan, noting that Vanguard's institutional offerings now include structured equity funds and target retirement commingled trusts. Vanguard also plans to introduce an extended-duration US Treasury index fund next month.
The Vanguard Market Neutral Fund's two share classes, investor and institutional shares, will have estimated expense ratios of 0.75 per cent and 0.60 per cent respectively. The Laudus Rosenberg fund currently has expense ratios of 1.54 per cent and 1.24 per cent (after fee waivers) for investor and institutional shares respective, including a 12b-1 fee (charged by some funds to cover promotion, distribution, marketing expenses or broker commissions) of 0.25 per cent on investor shares that will not be charged by the new fund.
The average expense ratio for funds in the long/short category is 1.97 per cent, according to Morningstar. All expense figures are net of dividend expenses associated with the shorting strategy of long/short funds, which can add 100 to 150 basis points to total annual operating expenses. The new fund will levy a 1 per cent fee on shares redeemed within one year of purchase, half the current 2 per cent fee on shares redeemed within 30 days of purchase.
At the end of July Axa Rosenberg, based in Orinda, California, managed USD137bn in individual country, regional and global strategies for pension funds, foundations and government entities in the Americas, Europe, Asia and Japan.
The Vanguard quantitative equity group, which oversees USD25bn in active quantitative equity fund assets, is sole investment advisor to six actively managed funds, the Strategic Equity Fund, Strategic Small-Cap Equity Fund and four structured equity funds, and manages portions of six other actively managed funds. Vanguard manages more than USD1.2 trillion in US mutual fund assets, offering more than 140 funds to US investors and more than 40 other funds in foreign markets.
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