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Vanguard Closes Junk Bond Fund

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June 12, 2003 — Vanguard Group closed Vanguard High Yield Corp/Inv (VWEHX) to new investors today and also restricted investments by shareholders. The moves are aimed at keeping investors from rapidly jumping in and out of the $9.2 billion fund, which has seen its assets swell in recent months, the company said.

Besides shutting its doors to new accounts, additional investments by current shareholders will be limited to $100,000 per year, Vanguard said, adding that it expects to keep the fund closed for at least three months.

The fund, which invests in so-called junk bonds, saw inflows of $1.4 billion this year through May, roughly twice as much is it took in during the preceding five months, Vanguard said. The company said it feared that some investors were chasing hot performance and high yields, and would quickly sell shares when the fund cooled off, driving up trading costs. Higher transaction costs can in turn hurt a fund’s returns.

The fund returned 9.9% and was yielding 6.86% year-to-date, according to the fund company.

Vanguard High Yield Corporate was up 8.4% this year through May, compared to a gain of 11.9% by the average low-quality bond fund.

So far, the amount of money pouring into the fund has not caused any problems for its manager, Vanguard said. The fund is run for Vanguard by Earl McEvoy, a senior vice president with Boston-based Wellington Management.

The recent rally in junk bonds has attracted record billions of dollars to domestic funds that invest in them.

A spokesman for Vanguard said it has no plans to close any of its other bond funds.