Home Adviser Fund Update Vanguard Launches New Fund Published June 5, 2015 Vanguard Alternative Strategies Fund Live In contrast to the oft-delayed launch of its municipal 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 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., Vanguard successfully birthed its Alternative Strategies fund (ticker symbol: VASFX) last week, although it is not yet available for investment (the official debut will likely come after it’s gathered some assets internally). The fund is an unusual one in the Vanguard universe, generally known for its low-cost, straightforward stockA financial instrument giving the holder a proportion of the ownership and earnings of a company., bond and money market options. The fund can use long-short strategies, event-driven investing and strategies to attempt to capture mispricing in the bond market, as well as commodity contracts and currencies. Fund manager Michael Roach, from Vanguard’s quant team, is expected to use leverage to amplify the investments in the fund. Vanguard has long cautioned individual investors against getting into this area. So what gives? To start, the fund has a $250,000 minimum, putting it out of reach for most retail investors, allowing Vanguard to keep to the spirit of its past advice. Rather than to attract individual investors, the fund was really created to fill a need within Vanguard’s Managed Payout fund-of-funds. Alternative Strategies will take the place of two sleeves of Managed Payout: Commodities, formerly owned through a special internal fund but more recently accessed by way of the PowerShares DB Commodity Index Tracking fund; and long-short strategies, represented by the firm’s Market Neutral fund. As of April 30, Managed Payout’s 10.1% allocation to Market Neutral represents $162 million, a little less than half of the total $377 million in assets in the long-short fund, whose days may now be numbered. Expenses for Alternative Strategies run 1.10%, well below the 1.64% expense ratio on Market Neutral. Alternative Strategies could very quickly blossom to more than $250 million in assets by replacing Managed Payout’s allocation to Market Neutral and the current 5.3% allocation to commodities. We’re not convinced that the addition of Alternative Strategies will make Managed Payout a better investment, but it could bring expenses down and make management of the fund easier for Vanguard. Supreme Court Rules in Favor of 401(k) Investors Last month, the Supreme Court ruled unanimously in Tibble v. Edison International that companies overseeing 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. are legally obligated to provide ongoing monitoring of investments. The Justices also expanded protections for employees in the retirement savings plans—good news for participants nationwide. In his opinion, Justice Stephen Breyer wrote that 401(k) planA 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. advisers’ continuing fiduciaryA person or organization who manages assets for a third party, and is legally bound to act in the best interests of that third party, putting the third party’s interest before their own. duty “to monitor trustA legal document that functions as an instruction manual to how you want your money managed and spent in your later years as well as how your assets should be distributed after your death. Assets placed in a trust are generally safe from creditors and can be sold by the trustee in short order, avoiding the lengthy and costly probate process. investments and remove imprudent ones” must “exist separate and apart from the trustee’s duty to exercise prudence in selecting investments at the outset.” The case was filed in 2007 by employees of energy company Edison International who alleged that the company failed to fulfill its fiduciary responsibility when it purchased retail mutual funds, rather than the less-expensive and virtually identical institutional-class funds, in 1999. The Supreme Court’s decision overturned a lower-court ruling that held the suit had been filed past a six-year statute of limitations set automatically when investments are purchased. Instead, Breyer explained, basing the opinion on centuries of common law, that investment managers responsible for the assets of other people remain responsible for monitoring investments beyond the initial investment decision. The Court ruled the case valid, but kicked it back to the Ninth U.S. Circuit Court of Appeals to decide the outcome. While the ruling has certainly been closely followed by plan administrators, it also serves as a good reminder to all members of a 401(k) of the importance of keeping a close eye on fees and the responsibility of your plan sponsor to find good options at the lowest possible cost. These are also core tenets of our approach. When Adviser Investments constructs 401(k) plans, management fees are analyzed as closely as returns and riskThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline. concerns. As a 3(21) and 3(38) fiduciary (meaning we are required to put client interests ahead of our own), we understand our ongoing responsibilities and our clients’ expectations. Our plan construction offers a high-quality set of investment options along the risk-reward spectrum for employees and their beneficiaries to choose among, while minimizing fees. Our plans’ objectives are typically five-fold: Provide a diverse and comprehensive set of passively and actively managed mutual funds to participants who wish to direct their own investments. Provide one-size-fits-all, third-party target-date funds to participants who want funds automatically reallocated based on an estimated retirement date. Provide portfolios composed of our top fund picks, managed and designed to match a range of risk comfort zones. Provide a long-term competitive rate of return. Control costs. If you’d like to learn more about our 401(k) plan construction, please feel free to contact us at (800) 492-6868. We also regularly helps clients build portfolios within their existing retirement plans to match their investment objectives. About Adviser Investments Adviser Investments is a full service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trustsA legal document that functions as an instruction manual to how you want your money managed and spent in your later years as well as how your assets should be distributed after your death. Assets placed in a trust are generally safe from creditors and can be sold by the trustee in short order, avoiding the lengthy and costly probate process., institutions and foundations since 1994, and have more than 3,500 clients across the country and over $6 billion in assets under management. Our portfolios encompass actively managed funds, ETFsA 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., socially responsible investments and tactical asset allocation strategies, with particular expertise in Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. Our minimum account size is $350,000. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868. Disclaimer: This material is distributed for informational purposes only. The investment ideas and expressions of opinion may contain certain forward-looking statements and should not be viewed as recommendations, personal investment advice or considered an offer to buy or sell specific securities. 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