June 12, 2003
The board of trustees of Vanguard High-Yield Corporate Bond Fund has decided to implement a "cooling-off" closure period
beginning at 4 p.m. on June 12, 2003. The $9.2 billion fund, which is among the mutual fund industry's top-selling bond funds
this year, will cease accepting new accounts and restrict existing shareholders to $100,000 in additional purchases per year.
"Investors continue to commit considerable assets to our fixed income funds and, in particular, Vanguard High-Yield Corporate Fund,
despite our ongoing educational efforts focusing on bond risks," said Vanguard Chairman John J. Brennan. "The performance of the
lower quality corporate issues has been quite strong this year, enticing investors to high-yield funds in great numbers."
Mr. Brennan also noted that in this low-yield environment, many income-seeking investors have been attracted to the fund for its
dividend yield, which is significantly higher than higher quality short- and intermediate-term bond investments.
Vanguard High-Yield Corporate Fund, which has returned 9.7% year-to-date, has experienced net cash inflows of $1.4 billion during
the first five months of the year -- roughly double the amount that was invested during the five previous months.
Vanguard closed their Precious Metals Fund in June 2002 because of massive hot money inflows back then. Turned out that they more or
less picked the top in the gold stock sector with that closure... locked the barn door after the golden calf was stolen, or something
like that. I'm wondering if they are similarly picking a top in the junk
bond market now?
What's different is that the money which rushed into their Precious Metals Fund was chasing performance while the money pouring into
the High-Yield Fund is just looking for some decent dividend yield. Super-low interest rates are driving people to take some
pretty big risks, and folks who live off dividend yield usually aren't in a position to take big risks.
(At the moment $2.18 trillion sits in money-market mutual funds, $1 trillion of that in retail funds held by individual savers and investors.)
Added August 1, 2003
US junk bond funds suffer $1 bln outflow in week
NEW YORK, Aug 1 (Reuters) - U.S. junk bond mutual funds lost $1.1 billion in cash outflows in the week ended July 30, AMG Data Services reported, as a rally in the bonds faded.
The funds had suffered a $91 million outflow the week before.
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