Longtime Vanguard Manager Steps Down

Vanguard Manager Retires

Earlier this year, longtime portfolio manager Larry Keele announced his plans to retire from the $1.9 billion Vanguard Convertible Securities fund after a nearly 19-year tenure. He hung up his hat June 30.

Keele co-founded Oaktree Capital Management, which has advised on the fund since 1996, and remains a member of Oaktree’s board of directors.

To smoothly transition the fund, Stu Spangler, a seasoned analyst who joined Oaktree in 1997, was appointed co-manager on the U.S. segment of the fund’s portfolio over the six months leading up to Keele’s retirement. Spangler’s primary experience is as a health-care analyst, the second-largest sector allocation in the fund. Given Spangler’s long tenure under Keele, we don’t expect any significant digressions from the fund’s core investment approach.

Vanguard Convertible Securities aims for both growth and income, investing at least 80% in corporate bondsA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. and preferred stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. that can be converted into common stocks, as well as debt instruments with common stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. attached to them.

The fund’s portfolio is split into two sleeves: Spangler manages the domestic side while co-managers Jean-Paul Nedelec and Abe Ofer oversee the international portion, which has been expanding since being added to the fund’s mandate in 2010. As of June 2015, the fund allocated about 30% to international holdings, up from 16% in November 2011. By prospectus, up to 50% can be invested in foreign securities, but the team will likely stick closer to the current 70/30 split over time.

As a refresher, a convertible security is a hybrid security structured like a bondA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates., in that it pays a periodic dividendA cash payment to investors who own stock in the company.. When first issued, convertibles are no different than traditional bonds (though with a slightly lower interest rate than comparable non-convertible bonds). But under certain circumstances, a convertible security can be exchanged, usually for a specified amount of common stock in the issuing company. Conditions are set on the time, price and number of shares received in the conversion. In this way, convertibles can benefit from a rise in price of the underlying stock.

Another Delay for Vanguard Tax-Exempt BondA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates.

We’ve repeatedly covered Vanguard’s reticence to launch its planned municipal bond index fund and ETFA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index., which was originally scheduled to debut on April 17, and has since been delayed by a month four times. Most recently, the launch date was set for August 7.

Yet again, the launch has been pushed back. Vanguard now says that the curtain will rise on the fund August 18. Perhaps the shorter, two-week delay is a positive sign that the firm is actually close to where it wants to be with the fund. We’ll believe it when we see it.

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