Vanguard Closing High-Yield Corporate Fund to New Investors - VWEHX

Vanguard to close its High-Yield Corporate Fund (Ticker VWEHX) to new investors.

On May 24, Vanguard made the following announcement on its web site:

Due to a sharp increase in cash flow into Vanguard High-Yield Corporate Fund—more than $2 billion in the last six months alone—we've closed the fund to most new investors.

While issuance of high-yield securities remains strong (the first quarter of 2012 saw the highest amount on record), we remain sensitive to the potential liquidity challenges that can arise in the market. Because of this potential, we've determined that limiting cash flow into the fund is in the best interest of its existing investors. This move will help the fund's advisor, Wellington Management Company, continue to execute its high-quality approach to high-yield investing.

Wellington Management is among the nation's oldest and most respected institutional investment managers. The firm has advised Vanguard High-Yield Corporate Fund since its inception in 1978.

Vanguard Chairman and CEO Bill McNabb attributed demand for the fund to today's low-yield investing environment.

"We continue to see investors turn to high-yielding alternatives," Mr. McNabb said. "The flows into the High-Yield Corporate Fund have been particularly acute, so we're taking this proactive step."

This isn't the first time Vanguard High-Yield Corporate Fund has closed because of high demand. In June 2003, the fund closed after it had a cash inflow of $1.4 billion during the first five months of the year. The fund reopened about six months later after cash flow slowed to a more manageable level.

If you're a current investor in the fund, you can continue to invest in it without limit. You may also become a new investor in the fund, without limit, if you're a client of Vanguard Asset Management Services™ or Vanguard Flagship Services™. Access to select Vanguard mutual funds closed to other investors is just one of the benefits offered by both services.

Vanguard High-Yield Corporate Fund's board of trustees will continue to monitor cash flows and take steps, as appropriate, to limit the fund's size or reopen it to new investors.

Bob Brinker has this fund in his "Marketimer Income Portfolio" with a 25% weighting. Usually when a fund he recommends closes to new investors he sells the fund and makes a new recommendation.  Of course, this is not one of his "official model portfolios" that he advertises performance for so he could keep it.

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Bob Brinker's Balanced Portfolio Advice

Bob Brinker now recommends retired listeners following his "balanced portfolio" have 30% to 70% of their investment portfolio in the stock market. 

This is a HUGE change for Brinker. I remember a caller to his show near the 2007 bull market highs before the last two bear markets was in Brinker's "Balanced" Model Portfolio #3 which was 2/3rds in equities. The caller asked Bob if they should re-balance this portfolio back to 50% equities and 50% fixed and Brinker was adamant that this was not his advice. This could be a good "contrarian indicator" that near-permabull Brinker is now far less bullish on stocks then he was at the peak in 2007 when they were much higher. 

 Read the full summary of this call at:

•  May 6 Asset Allocation Advice New!!  

Note.  Brinker's Model portfolios #1 and #2 remain 100% in equities while his "balanced" model portfolio #3 was close to 2/3rds in equities as of the May 2012 issue. 

Two Bear Markets Missed in Half a Decade

You don't hear Bob Brinker talk about this much since he was fully invested for both bear markets (See Brinker Asset Allocation History for full details.) but this is data worth keeping track of.

Bear Market Missed #1 in 2007 to 2009

High = 1576.09 Low = 666.79

Decline = 909.30 or 57.7% !!!

Bear Market Missed #2 in 2011: 

High = 1370.58 - Low = 1074.77 

Decline = 295.81 or 21.6% 

 (Click this chart to see the highs and lows circled.)

You have to chuckle that he calls his newsletter "Marketimer" when he has been 100% in equities for the last nine years without raising any cash for the "Great Recession" that was a bear market over 50%.  He had another chance last year to raise cash before another bear market but he rode that one out too.

Brinker should change the name of his newsletter to "Buy_And_Holder."

To Bob Brinker's credit, the markets are not that far from their all time highs but how many stuck with him and his multiple "buy signals" as the market plunged between the top in 2007 and mid 2009 when he started to give buy signals again after stopping near the lows?