At the end of October, Vanguard completed a process it announced a year earlier and closed down its high-minimum Signal share class for good. But this isn’t a sign of decay in Malvern or reason for investor dismay—it was simply another step in the fund giant’s efforts to simplify its fund lineup and cut costs for index investors.
The Signal share class was mostly geared toward larger, institutional or advisory investors with its $1 million buy-in requirement, and it offered lower expenses than Vanguard’s Investor and Admiral share classes in return. But as Vanguard began cutting costs and reducing minimums on its Admiral shares while adding new Admiral shares to existing funds over the last few years, that Signal share class became redundant. Hence the move in October 2013, when Signal shares were closed to new investors and eight funds had their Signal shares converted into new Admirals.
The final step took place on October 24, when 17 index funds’ Signal shares were merged out of existence into the affected funds’ Admiral shares. In the table below, we’ve listed those funds, their now-defunct Signal ticker symbols, their new Admiral symbols and their expense ratios, which had already been identical for the two share classes for some time.
|Emerging Markets StockA financial instrument giving the holder a proportion of the ownership and earnings of a company. Index
|European Stock Index
|Extended Market Index
|Intermediate-Term 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. Index
|Pacific Stock Index
|Short-Term Bond Index
|Total Bond Market Index
|Total International Stock Index
|Total Stock Market Index
Note: Expenses as of 9/30/14.
While this move is irrelevant to most individual investors, who would not have been able to invest in Signal shares on their own, one place where smaller investors may notice a change is in their 401(k) plansA 401(k) plan is a retirement account that a company sets up on behalf of its employees. Both the participant and the employer can contribute to the account. There are two types of 401(k)s, traditional and Roth. Income invested in traditional 401(k)s isn’t taxed while it’s invested, but is taxed when it’s withdrawn. Income invested in a Roth 401(k) is taxed before it’s invested, but no tax is paid when it is withdrawn., where Signal shares were commonly used. Vanguard says that the only possible difference one might see in an account following the move is in the number of shares owned, as the Signal and Admiral shares in some cases had disparate NAVs. But investors’ overall dollar value invested in any affected fund should be the same post-transition.
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