June 14, 2011

Vanguard Launches Emerging Markets Select Stock Fund

New actively managed fund comes as U.S. investors increasingly navigate global investing waters

As emerging markets capture a growing share of U.S. investors’ attention, the country’s largest mutual fund company has announced the launch of an actively managed emerging markets stock fund.

Vanguard on Tuesday introduced the Vanguard Emerging Markets Select Stock Fund (VEIEX), an equity fund that will employ the advisory services of four global firms: M&G Investment Management Limited, Oaktree Capital Management L.P., Pzena Investment Management LLC, and Wellington Management Co. LLP.

The fund is now accepting investments during a two-week subscription period that is scheduled to conclude at the end of business on June 27. Following the subscription period, fund assets will be allocated equally among the four investment advisors.

Mutual fund trade group The Investment Company Institute reported in 2010 that Vanguard, headquartered in Valley Forge, Pa., had become the largest fund company, at $1.3 trillion in assets, surpassing Fidelity’s $1.2 trillion. Vanguard currently reports that it has $1.7 trillion of U.S. mutual fund assets under management.

Vanguard Emerging Markets Select Stock Fund seeks to provide long-term capital appreciation by investing in equity securities of small-, mid-, and large-capitalization companies located in emerging markets. It will have an estimated expense ratio of 0.95%. The fund will be available to individual retail investors who invest directly with Vanguard and will require a $3,000 minimum initial investment. As with its other international stock funds, Vanguard will assess a 2% redemption fee on shares held less than 60 days to deter short-term trading.

However, Vaughan Scully of Standard & Poor’s noted in a recent “Portfolio Fix” that what and how much to own when investing internationally only seems to get more puzzling for investors. Further, despite the recent popularity of emerging markets funds, Vanguard senior analyst Chris Philips warned in an AdvisorOne interview last month that predicting global investment returns is uncertain at best, especially in the short run.

“What we are seeing in 2011 is quite contrary to what many expected last year,” Philips said. “The United States has outperformed the emerging markets and other developed markets. If you’d polled those in our industry at the very beginning of this year, I don’t think anyone would have predicted that we’d be where we are.”

Vanguard has offered both index and active funds for more than 35 years, and about 44%, or $748 billion, of the firm’s total assets under management are in 73 actively managed funds. Of Vanguard’s 29 actively managed stock funds, 15 use a multi-manager approach.

Read an interview about emerging markets with U.S. Global research director John Derrick at AdvisorOne.com.

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