Vanguard Explorer Manager to Pass Baton; Good Tax News for Schwab ETFs

Granahan plans to give up portfolio management duties to co-managers at year end, as Schwab says its 21 exchange-traded funds have no capital-gains distributions for 2013

Vanguard sign (Photo: AP) Vanguard sign (Photo: AP)

Fund giant Vanguard said early Monday that John “Jack” J. Granahan — a portfolio manager with the multimanaged $12.4 billion Vanguard Explorer Fund, the $1.3 billion Vanguard Variable Insurance Fund-Small Company Growth Portfolio and the Irish-domiciled $125 million Vanguard U.S. Discoveries Fund — will hand off management responsibilities at year-end.

His investment responsibilities will be taken on by other portfolio managers at the firm, including CEO Jane White and Chief Investment Officer Gary C. Hatton, who co-founded Granahan Investment Management with Granahan, now 77, in 1985. White and Hannon have been co-managers of the Explorer Fund since 2000 and 1998, respectively.

“I’d like to thank Jack on behalf of Vanguard and our shareholders,” said Vanguard CEO Bill McNabb, in a statement. “His wisdom, investment acumen, and experience greatly contributed to the success of our shareholders over four decades. As one of Vanguard’s longest-tenured managers, he leaves behind a great legacy and team, who we are confident will continue to serve our shareholders well.”

The Vanguard Explorer Fund (VEXPX, VEXRX) has risen 37.1% so far this year vs. 27.7% for the S&P 500, while the Vanguard Variable Insurance Fund-Small Company fund has ticked up 37.1%, according to Bloomberg.

Before co-founding the firm that bears his name, Granahan managed the Explorer Fund during the 1970s at Wellington Management Co., where he also led the Vanguard Morgan Growth Fund.

Vanguard tapped Granahan Investment Management to manage the Vanguard Explorer II Fund when it was rolled out in 1985; it also retained the Grahanan fund-management team to run part of the Explorer Fund when it merged with the Explorer II Fund in 1990.

Granahan will remain chairman of the investment management group, which oversaw nearly $4 billion in assets as of Sept. 30, including $3.4 billion for Vanguard.

Other managers of the Explorer Fund are Century Capital Management, Chartwell Investment Partners, Kalmar Investment Advisers, Stephens Investment Management Group, Wellington Management and Vanguard Equity Investment Group. Vanguard says it uses a multimanager approach for 18 funds.

No Capital Gains Distributions for Schwab ETFs

Charles Schwab Investment Management (SCHW) said Monday that none of its 21 ETFs will have capital gains distributions in 2013 — a plus for investors looking to maximize their tax efficiency with these products, it noted.

Schwab ETFs, including the six Schwab Fundamental Index ETFs rolled out in August, had $16.1 billion in assets as of Nov. 29, nearly double their year-ago asset base. The six Fundamental Index ETFs have close to $170 million in assets.

“We’re very pleased to be maintaining our track record of tax efficiency across all Schwab ETFs, having never distributed capital gains since we launched our first ETFs in 2009,” said John Sturiale, vice president of product management for Charles Schwab, in a press release. “Every penny counts when evaluating a fund’s total costs, and tax efficiency is a critical component for investors.”

Several Schwab ETFs recently received awards for “best investor experience” over the past year from Morningstar, including Schwab U.S. Broad Market ETF (SCHB) for the U.S. ETF Large Blend category; Schwab Emerging Markets Equity ET (SCHE) for the U.S. ETF Diversified Emerging Markets category; Schwab U.S. Large-Cap Growth ETF (SCHG) for the U.S. ETF Large Growth category; and Schwab International Equity ETF (SCHF) for the U.S. ETF Foreign Large Blend category.

Schwab started offering commission-free online trading of its proprietary ETFs in November 2009.

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Check out 9 Tax Breaks Expiring at Year’s End on ThinkAdvisor.

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