Fund merger puts Vanguard investors into higher-priced version

Investors in the $770 million Vanguard Capital Value Fund (VCVLX) might notice a slight bump in fees at some point this year as The Vanguard Group announced Monday that it plans to merge the fund with the $17.6 billion Vanguard Windsor Fund (VWNDX).

While there is no set date for the official merger, it is designed to “reduce duplication in the fund lineup,” according to a spokesperson.

The Capital Value fund, which is sub-advised by Wellington Management Co., has an expense ratio of 29 basis points and is down 34.6% this year through Friday. Last year, the fund gained 32.9%.

The Windsor fund, which is sub-advised by Wellington and Pzena Investment Management, charges 30 basis points and is down 37.3% this year. It gained 30.4% last year.

“Vanguard will be able to use the scale of the merger to continue to remain efficient,” said Todd Rosenbluth, director of mutual fund and ETF research at CFRA.

“Mutual fund mergers are likely to increase among active funds to eliminate redundancy to compete against growing demand for low-cost index-based alternatives,” Mr. Rosenbluth said.

Dan Wiener, editor of The Independent Adviser for Vanguard Investors, described the merger as a virtual wash for investors.

“After myriad portfolio managers and years of underperformance, Vanguard is closing Capital Value,” he wrote in a morning email. “Windsor hasn’t exactly been a powerhouse relative to Capital Value though it has outperformed by a bit.”

Vanguard, which has $1.4 trillion in actively managed assets, has a long track record of product leadership and making changes, including merging funds, changing advisers, modifying mandates, and closing and liquidating funds.

Over the past 12 months, the company has announced changes to Vanguard Managed Payout Fund; reopened Vanguard Dividend Growth Fund; modified the advisory teams of its Vanguard Windsor II Fund, Vanguard Selected Value Fund, and Vanguard Variable Insurance Fund-Diversified Value Portfolio; introduced three new funds; reduced mutual fund and exchange-traded fund expenses; and entered a strategic partnership to provide qualified investors with access to private equity.

“We apply a rigorous and comprehensive evaluation process to the oversight of our funds and advisers to ensure we are offering sound, enduring solutions that meet the long-term needs of our clients,” said Matt Brancato, head of Vanguard’s Portfolio Review Department.

“We believe this merger will benefit Capital Value Fund shareholders by providing them with exposure to the two outstanding investment advisers managing the Windsor Fund and will benefit the combined fund through improved economies of scale,” Mr. Brancato said.

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