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  • hank August 2019
  • msf August 2019
  • Ted August 2019
Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

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Vanguard Market Neutral Fund & Vanguard Alternative Strategies Fund lowers initial minimums

https://www.sec.gov/Archives/edgar/data/1409957/000093247119007247/supplementmarketneutral.htm
497 1 supplementmarketneutral.htm MARKET NEUTRAL FUND INVESTOR SHARES SUPPLEMENT

Vanguard Market Neutral Fund

Supplement Dated August 1, 2019, to the Prospectus Dated
April 26, 2019

The minimum investment amount required to open and maintain a Fund account for
Investor Shares will be reduced from $250,000 to $50,000. The account minimum
change is expected to become effective on or about November 4, 2019.

The Fund's investment objective, strategies, and policies will remain unchanged.

Prospectus Text Changes

The following replaces similar text under the heading “Purchase and Sale of Fund
Shares” in the Fund Summary section:

You may purchase or redeem shares online through our website (vanguard.com), by
mail (The Vanguard Group, P.O. Box 1110, Valley Forge, PA 19482-1110), or by
telephone (800-662-2739). The minimum investment amount required to open and
maintain a Fund account for Investor Shares is $50,000. The minimum investment
amount required to add to an existing Fund account is generally $1. Financial
intermediaries and institutional clients should contact Vanguard for information on
special eligibility rules that may apply to them regarding Investor Shares. If you are
investing through an intermediary, please contact that firm directly for more
information regarding your eligibility. If you are investing through an employer-
sponsored retirement or savings plan, your plan administrator or your benefits office
can provide you with detailed information on how you can invest through your plan.

The following replaces similar text under the heading “Account Minimums for
Investor Shares” in the Investing With Vanguard section:

To open and maintain an account. $50,000. Financial intermediaries and institutional
clients should contact Vanguard for information on special eligibility rules that may
apply to them regarding Investor Shares. If you are investing through an intermediary,
please contact that firm directly for more information regarding your eligibility.

To add to an existing account. Generally $1.

© 2019 The Vanguard Group, Inc. All rights reserved.
Vanguard Marketing Corporation, Distributor. PS 634 082019



https://www.sec.gov/Archives/edgar/data/313850/000093247119007246/alternativestrategies497.htm

497 1 alternativestrategies497.htm ALTERNATIVE STRATEGIES 497

Vanguard Alternative Strategies Fund

Supplement Dated August 1, 2019, to the Prospectus Dated
February 27, 2019

Important Changes to the Fund

The Fund's Board of Trustees has approved changes to the investment
objective and benchmark of the Fund. The Fund's investment objective will
change to: “The Fund seeks to generate returns that have low correlation with
the returns of the stock and bond markets and seeks capital appreciation.” The
Fund's performance benchmark will change from the FTSE 3-month US T-Bill
Index +4% to the FTSE 3-month US T-Bill Index.
The Fund will also adopt a risk methodology that targets a fixed volatility range
of 5-7% measured at the portfolio level. However, the Fund's volatility from time
to time may move outside this targeted range.
The account minimum required to open and maintain an account will be reduced
from $250,000 to $50,000.

The investment objective and benchmark changes for the Fund, together with
the risk methodology adoption, are expected to become effective on or about
November 1, 2019. The Fund's registration statement will be updated at that
time to reflect these changes. The account minimum change is expected to
become effective on or about November 4, 2019.

Prospectus Text Changes

The following replaces similar text under the heading “Investment Objective” in
the Fund Summary section:

The Fund seeks to generate returns that have low correlation with the returns of
the stock and bond markets and seeks capital appreciation.

The following paragraph is added after the third paragraph under the heading
“Principal Investment Strategies” in the Fund Summary section:

The Fund has adopted a risk methodology that targets a fixed volatility range of
5-7% measured at the portfolio level. However, the Fund's volatility from time to
time may move outside this targeted range.

The following replaces similar text under the heading “Annual Total Returns”:

The following bar chart and table are intended to help you understand the risks of
investing in the Fund. The bar chart shows how the performance of the Fund has
varied from one calendar year to another over the periods shown. The table
shows how the average annual total returns of the Fund compare with those of a
relevant market index, which has investment characteristics similar to those of the
Fund. Effective November 1, 2019, the FTSE 3-month US T-Bill Index +4% was
replaced with the FTSE 3-month US T-Bill Index in order to align with the Fund's
investment objective and risk methodology. The Spliced Alternative Strategies
Index reflects the performance of the FTSE 3-month US T-Bill Index +4% through
October 31, 2019, and the FTSE 3-month US T-Bill Index thereafter. Keep in mind
that the Fund's past performance (before and after taxes) does not indicate how
the Fund will perform in the future. Updated performance information is available
on our website at vanguard.com/performance or by calling Vanguard toll-free at
800-662-7447....


Comments

  • The Fund seeks to generate returns that have low correlation with the returns of the stock and bond markets and seeks capital appreciation. The Fund's performance benchmark will change from the FTSE 3-month US T-Bill Index +4% to the FTSE 3-month US T-Bill Index.

    If one wants an investment that correlates very little with anything else, and a return roughly matching an index of 3 month Treasury bills, wouldn't it be easier and cheaper just to invest in cash, aka 3 month T-bills?

    You don't have to be a Flagship customer to qualify for T-bills, and you don't have to pay 0.66%/year to match cash returns. What am I missing?
  • edited August 2019
    “What am I missing?” -

    I don’t know. Except that the world of “alternative” investing is by nature a bit whacko. Over time they expect you’ll get about the same return as the 3-month Treasury. But you’ll arrive at in a different way and at different times. So when the 3-month treasury zigs ... your alternative fund should zag.

    Some of us like to own things that move in different directions, even if the end result works out about the same. Gives some folks an added sense of security I guess. Look at the positive side: You’re providing work for some unemployed fund manager.:)

    But a great post by @msf.
  • edited August 2019
    This prompted me to take a look at my one “alternative” fund. That’s TMSRX from T. Rowe, which is approximately one year old. It’s an odd-duck in itself, relying on 5 different managers, each responsible for a different investment approach. But from a recent fund report here’s what I was able to clip:

    The Multi-Strategy Total Return Fund returned 2.70% in the six-month period ended April 30, 2019, and outperformed the ICE Bank of America Merrill Lynch U.S. 3-Month Treasury Bill Index.”

    So it sounds as if they’re using the same 3-month T Bill index the Vanguard fund uses. One difference is that Vanguard bills its alternative fund as only for “sophisticated” investors. On the other hand, T.Rowe allows anybody with the minimum investment ($1,000 for IRA’s) to open an account. The fact that I was able to get in is testament that you don’t need to be very sophisticated to be let in the door.:)

    But, I do want to say this: Although they “benchmark” against the 3-year treasury, I don’t think Price is shooting that low in their own expectations as to how this fund will perform. I know from reading their various commentaries over the past year that they feel this fund can generate positive returns, even in the event both stocks and bonds slump badly. That seems to be the underlying reason Price committed to this fund. How they plan to execute all this I can’t say. But I have enough confidence after 25+ years with them that if anyone can pull it off they can. Following it daily does seem to suggest little correlation with any other asset class. I’m not impressed, however by its performance over the first year. It lags even stodgy diversified income fund RPSIX YTD - not a very high hurdle IMHO.

    FWIW
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