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Portfolio > Mutual Funds

Vanguard to Merge Growth Funds, Shake Up 3 Fund Advisory Teams: Portfolio Products

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Vanguard announced plans to merge the $15.1 billion Vanguard Morgan Growth Fund into the $10.2 billion Vanguard U.S. Growth Fund.

Following the merger, which is scheduled to be completed in early 2019, the fund will retain the U.S. Growth Fund name and continue to invest primarily in large-cap stocks of U.S. companies considered to have above-average earnings growth potential and reasonable stock prices in comparison with expected earnings.

Four current advisors of the U.S. Growth Fund will be retained — Wellington Management Company, Jackson Square Partners, Jennison Associates and Baillie Gifford Overseas — and Vanguard Quantitative Equity Group will be added to the advisory team.

Given the similarities in objectives, strategies, portfolios and performance between the funds, Vanguard determined that the merger results in a stronger combination of investment advisors and in greater efficiencies in administration.

Following the merger, the expense ratios for the fund’s Investor and Admiral Shares are expected to be 0.38% and 0.28%, respectively. This is lower than the current expense ratios of the U.S. Growth Fund and equal to those of the Morgan Growth Fund.

Vanguard is also realigning the multi-manager approach teams of three funds.

The $5.4 billion Vanguard Global Equity Fund will be advised by two of the current advisors, Baillie Gifford and Marathon Asset Management LLP. Acadian Asset Management LLC will no longer manage a portion of the fund.

The team for the $4.2 billion Vanguard Mid-Cap Growth Fund will include current advisor RS Investment Management Co., along with two new advisors to the fund: Frontier Capital Management LLC and Wellington.

The $664 million Growth Portfolio of Vanguard Variable Insurance Fund will be managed by two of the current advisors: Jackson Square and Wellington.

The merger and the advisory changes are a result of Vanguard’s ongoing and comprehensive review of its global fund and ETF lineup.

Scaramucci’s Firm and EJF Capital Launch Opportunity Zone REIT

SkyBridge Capital, a global alternative investment firm, and EJF Capital, a hedge fund and private equity fund manager, launched the SkyBridge-EJF Opportunity Zone REIT (SOZ REIT).

The new REIT has a mandate to invest in U.S. Treasury-certified Opportunity Zones, which are low-income communities where recycled capital gains can receive favorable tax treatment.

According to Anthony Scaramucci, founder and co-managing partner of SkyBridge, the SkyBridge-EJF Opportunity Zone REIT was launched in response to demand from investors, who “correctly see the OZ program as a chance to potentially generate attractive returns while having a positive societal impact.”

According to the Real Deal, a New York real estate news site, the Opportunity Zones program, created as part of last year’s tax overhaul plan, offers tax deferrals and benefits to investors who park their money in assets located within designated low-income neighborhoods. There are more than 8,700 designated zones nationwide. Despite the interest the program has already stirred among developers and investors, final regulations have yet to be released.

To be eligible for the Opportunity Zones program, census tracts must have a 20% poverty rate or median family income of less than 80% of the surrounding area. Governors then chose 25% of eligible tracts in their state to be certified by the Treasury Department as Opportunity Zones.

The SOZ REIT offering is structured as a private, non-exchange-traded REIT available to accredited investors at a minimum investment of $100,000 with 1099 tax reporting and quarterly distributions. SOZ REIT is expected to be diversified by geography, property type, and developer, focusing on both new development and redevelopment real estate projects.

The Real Deal reported that SkyBridge Captial and EJF Capital starting raising funds on Dec. 1 through the SOZ REIT fund, which has been soliciting capital from “a small batch” of clients and friends, Scaramucci said during a conference call. Now, it’s “open to everybody” who wants in, he added.

Spouting Rock Asset Management Debuts Small-Cap Fund

Spouting Rock Asset Management launched a new small-cap growth mutual fund.

The Spouting Rock Small-Cap Growth Fund has both institutional (SRSCX) and advisor (SRSAX) share classes, for which it is seeking to raise $750 million in assets, at which time the fund will seek approval for a soft close to new investors.

To avoid the fund becoming capacity-constrained, Spouting Rock will not target wirehouses, electing instead to focus its asset-raising efforts on RIAs, family offices and high-net-worth individuals.

The fund’s strategy mirrors that of the 60-stock “focused” sleeve of Spouting Rock Asset Management’s small-cap separately managed accounts, which launched in September 2017.

Spouting Rock selects individual stocks and attempts to build a portfolio of Future Compounders, which are companies undergoing demonstrated business improvements that it believes can provide higher compound earnings, growth and stock price appreciation. Spouting Rock is committed to going name-by-name; gaining a deep understanding of the company operations and management; and evaluating each firm on its own qualities, including its ESG merits, with a goal of risk management for clients.

IndexIQ Launches the IQ 500 International ETF

IndexIQ, a New York Life Investments company, announced the launch of the IQ 500 International ETF (IQIN).

IQIN tracks the performance, before fees and expenses, of the IQ 500 International Index, which was developed by IndexIQ and has a live track record dating from Dec. 31, 2007. All index components are headquartered outside the U.S. and are made up of common stock, not American depositary receipts.

The potential universe of constituent equities is ranked and weighted according to three fundamental factors: sales, market share and operating margin.

IQIN looks at key fundamental factors and weighting the portfolio based on key metrics of relative strength and market position. The result is a solution that IndexIQ believes delivers greater diversification across the international equity markets along with the potential to generate better risk-adjusted returns than traditional international investing approaches.

Oranj Expands Free Model Marketplace

Oranj expanded the selection of funds and models available in its model marketplace.

Advisors will now have direct access to Aberdeen Standard Investments, Calamos Investments, Invesco, and Nationwide products. The announcement brings an additional 191 products and models to the model marketplace, raising the total number to more than 1,300.

Oranj has increased the number of available products in the marketplace by more than 500% since the announcement of its free offering a year ago, and now features managers who have more than $9.9 trillion assets under management, including the addition of Aberdeen, Calamos, Invesco and Nationwide.

Advisors can also access virtually any mutual fund, ETF, or stock to create models and portfolios using products of their choosing, and conduct rebalancing tasks on those strategies through Oranj’s Marketplace Pro, with a flat, annual subscription.


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