The funds will invest solely in their three broad market component funds (Vanguard Total Stock Market Index Fund, Vanguard Total International Stock Index Fund, and Vanguard Total Bond Market II Index Fund) and gradually eliminate exposure to their actively managed component funds (Vanguard Asset Allocation Fund and Vanguard Short-Term Investment-Grade Fund).
“An all-index approach has several benefits, including lower costs and a simplified portfolio design,” said Vanguard CEO Bill McNabb. “This change will also bring a more consistent approach to Vanguard’s entire global line-up of lifecycle funds.”
Once the transition to the lower-cost index funds is completed, the expense ratios of the LifeStrategy Funds are expected to decline two to four basis points and will range from an estimated 0.14% to 0.18%. (During the transition, which is expected to last several months, the expense ratios will remain between 0.18% and 0.20%.) The all-index composition is used by Vanguard’s LifeStrategy Funds offered in the United Kingdom and Australia, and the component funds in the LifeStrategy Funds are the same three total market index funds that comprise Vanguard’s Target Retirement Funds.
The LifeStrategy Funds will offer well-defined, static portfolios with these consistent risk profiles:
- Growth Fund: 80% stocks/20% bonds
- Moderate Growth Fund: 60% stocks/40% bonds
- Conservative Growth Fund: 40% stocks/60% bonds
- Income Fund: 20% stocks/80% bonds
Vanguard has also modified the investment strategy and policies of the $8.6 billion Vanguard Asset Allocation Fund and named new investment advisers. Vanguard’s Quantitative Equity and Fixed Income Groups have assumed investment advisory responsibilities from Mellon Capital Management Corporation and will gradually transition the fund to a static 60% stocks/40% bonds portfolio.
Vanguard filed a preliminary proxy statement with the U.S. Securities and Exchange Commission that seeks shareholder approval to merge the Asset Allocation Fund into the $11.1 billion Vanguard Balanced Index Fund.
Vanguard announced that the $4 billion Vanguard Growth and Income Fund has adopted a multi-manager approach, with three advisers assuming investment advisory responsibilities from Mellon Capital Management Corporation. The new advisers, each of which manage approximately one-third of the fund’s assets, are: Los Angeles Capital Management, D.E. Shaw Investment Management L.L.C., and Vanguard Quantitative Equity Group.