Products June 20, 2024

Vanguard Reopens Two Actively Managed Mutual Funds to New Investors

Vanguard has brought back its Primecap and Primecap Core funds, which were closed to new investors in 2004 and 2009, respectively. 

Reported by

Vanguard has decided to reopen two actively managed stock mutual funds. 

On Tuesday the firm announced that it would reopen its Primecap (VPMCX) and Primecap Core (VPCCX), which have been closed off to new investors since 2004 and 2009, respectively. A third Primecap fund, Capital Opportunity (VHCAX), was also closed in 2004 and remains closed.  

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

The two large-cap growth funds have reopened without restriction to all investors and will be available for all new accounts. Primecap had assets of $76.1 billion at the end of May, while Primecap Core had assets of $13.2 billion.

Vanguard routinely closes funds to new investors when it is in the best interest of shareholders, according to a spokesperson for the firm. One thing that the firm evaluates when doing so is whether the size of a fund could impact a manager’s ability to effectively generate alpha for investors. 

“After careful consideration of the funds’ current investment capacity, Vanguard has determined that the funds have sufficient capacity to reopen to new accounts and additional purchase without limit,” the spokesperson said.

Both funds have strong returns, outperforming their benchmarks. Primecap has returned 15788.63% since its inception in 1984, or 13.66% annualized against an 11.6% benchmark and has posted annualized one-, three-, five- and 10-year returns of 29.11%, 27.80%, 108.14%, and 249.48%, respectively.

Primecap Core, launched in 2004, has returned an annualized 11.2% since inception, beating its 10.26% benchmark and over the past one, three, five and 10 years has returned an annualized 28.98%, 8.26%, 15.04%, and 12.42% respectively, against benchmarks of 28.17%, 8.67%, 15.59% and 12.56%, respectively. 

Over the last two decades, investors have significantly shifted from actively managed strategies to passive ones. According to Morningstar data, passively managed funds took in $73 billion, while passively managed ones saw outflows of $15 billion in May 2024. 

Both Primecap funds are actively managed mutual funds with a long-term perspective, primarily made up of U.S. large-cap equities. Primecap focuses on growth-oriented stocks, while Primecap Core’s portfolio consists of stocks with value and growth characteristics. Year to date, Primecap Fund has returned 14.48%, and Primecap Core has returned 13.11%.

Since the closure of the funds, existing investors have been limited to annual purchases of $25,000. Among those who could still buy the actively managed mutual funds included Vanguard flagship services clients, those with more than $1 million invested in the firm’s mutual funds. 

Both funds are managed by Primecap Management Co., an American investment management firm, which has actively managed equity portfolios for Vanguard since 1984.

Data & Research June 20, 2024

Younger High-Net-Worth Investors Seek Out Alternative Investments

Gen Z and Millennials are turning to alternatives instead of traditional stock and bond investments.

Reported by

High-net-worth investors in the Generation Z and Millennial cohorts are seeking alternatives to traditional stock and bond investments to expand their wealth, showing interest in a wide range of products, including digital assets, gold, investment real estate as well as private equity, finds the 2024 Bank of America Private Bank Study of Wealthy Americans.

One reason that younger investors are turning to alternatives is in reaction to recent market volatility, says Aaron Filbeck, managing director and head of Unifi by Chartered Alternative Investment Analyst Association.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

“When you look at 2022 for example, and everyone points to the rise of correlations between stocks and bonds, I think there’s just been an appetite since then for broader diversification,” he says. “That could be alternatives. It could just be broadening the toolset.”

Filbeck says another reason for the growing interest in alternatives among younger investors is the rise of capital formation occurring in the private markets. Venture backed companies are staying private for longer or are not going public at all. Banks are retrenching from providing loans to small and medium-sized businesses. CAIA’s research was separate from that by BofA.

“There’s this whole opportunity set, both on the equity and debt side, in particular in the private markets that provides access to other parts of the economy,” he says.

The Bank of American survey found that compared to only 28% of investors over the age of 44, 72% of younger investors, those between the ages of 21 and 43, think it is no longer feasible to obtain above-average investment returns by investing exclusively in traditional equities and bonds.

The research indicates that younger high-net-worth individuals had significantly less stock and bond exposure in their portfolios, 47% versus 74% for investors over age 44. Compared to older investors, who allocate 5% of their investing portfolios to alternatives, younger investors allocated 17%. In the coming years, 93% of younger investors said they want to devote more money to alternatives.

Among younger investors, 38% are interested in acquiring cryptocurrencies, while 49% already hold them. They place real estate investments ahead of cryptocurrencies as offering the best growth prospects. Gold is an asset that 45% of younger investors hold physically, and another 45% reported being interested in doing so.

Bank of America’s research drew responses from 1,007 high-net-worth individuals throughout the US. Participants in the research were at least 21 years old and had investable assets worth at least $3 million, excluding primary residence.

A Second Phase of Democratization

The asset management industry is moving into a “second phase of democratization” of alternative investments, according to the CAIA’s latest report “Crossing the Threshold: Mapping a Journey Towards Alternative Investments in Wealth Management.” A wider range of investors can now access even more private market products with better technology and access points, the group’s report stated.

When it comes to integrating alternative investments, the report recommends long-term thinking and implementation. CAIA suggests creating a commitment strategy that enables investing across several subsequent private fund vintage years.

The CAIA study encourages advisers to spread out their underlying managers across public and private markets to make sure that different industries and regions are represented in ways that align with the portfolio’s goals. Furthermore, advisers should assess which fund vehicles are suitable for any underlying asset class, their firm’s operational capacity and the investor’s ability and willingness to access.

Filbeck encourages plan sponsors and plan advisers to think through alternatives very carefully given implementation of the investments still faces many obstacles. He says there is a concerted push to try to integrate alternatives into 401(k) plans, but it is an uphill battle because of liquidity, fees and other complexities.

“There needs to be a bit of an openness for younger investors and younger participants who are trying to access these areas,” he says. “If you’re 40 years from retirement, being able to access earlier stage companies, that conversation needs to happen. It may not necessarily be in the current form of funds that we see today, but I think it’s important for advisers to have an open mind with an eye towards risk management and due diligence.”

«