Vanguard is to liquidate its $962.3 million Vanguard Convertible Securities fund, depsite the fund being the fifth largest in its Morningstar category.
The move to wind down the fund follows a period of outflows, underperformance as well as recent manager turnover at the fund's advisor Oaktree Capital Management.
The fund has been closed to new investors immediately and will be liquidated on March 19.
Despite being just shy of $1 billion in size, according to Vanguard, the fund has not been widely accepted by investors and is one of the smallest the firm offers in terms of net assets.
The firm said that the liquidation was part of its ongoing and review of its global fund and ETF line-up.
'We are adding new products that have investment merit and investor demand, changing advisors and mandates to improve investor outcomes, and eliminating funds that lack a distinct role or strong investment case,' said Matthew Brancato, head of Vanguard’s portfolio review department.
The fund ranks 18 out of 19 Convertible Securities funds tracked by Citywire for three-year total returns to the end of November. During that time, it was up 13.4% compared with the category average return of 20.5%, and the ICE BofA Merrill Lynch All Convertibles/QIt TR index, which was up 29.28%.
Over the last three years, from December 2015 to December 2018, investors have withdrawn a total of $885.2 million from the fund, according to data from Lipper.
Jeff DeMaso, director of research at $5.5 billion RIA Adviser Investments, who also edits the Independent Adviser for Vanguard Investors, said that outflows and the fund's small size compared to other Vanguard offerings were likely reasons for the liquidation.
'A billion dollars is a huge success for a lot of investment firms, but at Vanguard, with their approaching $5 trillion in assets, it's just not worth the hassle anymore,' he said.
Zach Patzik, a fixed income manager research analyst at Morningstar, who covers the fund, said the liquidation came as a bit of a surprise.
'Performance certainly is a factor,' he said. 'There were some misses here and there, but nothing really out of the ordinary. Perhaps from a Vanguard business perspective this was simply a decision to allocate resources elsewhere.'
Patzik pointed out there had been some management turnover on the fund ahead of the liquidation. On December 31 2018, Citywire AA-rated Abe Ofer retired from Oaktree Capital Management.
A spokeswoman for Vanguard confirmed Ofer’s retirement and said this was unrelated to the liquidation.
Oaktree declined to comment.
DeMaso added: 'It was surprising in that Oaktree was a well-respected investment team. They've been managing the fund since 1996, so over 20 years.'
Morningstar director of manager research Jeffrey Ptak noted that the fund was the fifth largest by assets under management in Morningstar’s convertibles category.
Vanguard liquidating its Vanguard Convertible Securities Fund. At $962MM in assets, it was 5th largest fund by AUM in the Morningstar Convertibles category. OakTree has subadvised the fund to this point. https://t.co/8WOR7943f5— Jeffrey Ptak (@syouth1) January 3, 2019