Vanguard is radically restructuring its Managed Payout Fund, which was designed to deliver a fixed 4% monthly payout to retirees.
The fund is being renamed the Vanguard Managed Allocation Fund, eliminating its monthly payouts in favor of an annual distribution and replacing one of its portfolio managers. Effective immediately, Fei Xu succeeds John Ameriks, who remains head of Vanguard’s Quantitative Equity Group, which manages the fund.
The new fund will continue to offer a diversified portfolio of equities, fixed income, commodity-linked investments and alternative investments by investing in multiple Vanguard funds through an actively managed asset allocation process, most likely for the same 0.32% expense ratio.
Its last scheduled monthly payout will come in May, after which time investors can stipulate a specific amount of shares redeemed at regular intervals, including monthly, to receive a regular stream of cash.
“Vanguard finally admitted it can’t manage the payouts on Managed Payout,” said Dan Wiener, editor of The Independent Adviser for Vanguard Investors newsletter and chairman and co-founder of Adviser Investments. The fund “was a loser, paying investors back with their own capital just to keep their monthly dividend intact.”
The Managed Payout Fund had attracted only a “modest asset base” of $1.9 billion since it was created in 2014 as the successor to three separate managed payout funds that were originated in 2008, according to Vanguard.
Many shareholders did not use the fund as it was intended. Rather than collect the monthly payouts, they chose to reinvest those distributions instead.