Vanguard

[CliffEdge]

I came across the following statement in the prospectus for Lifestrategy and Target funds:

Temporary Investment Measures
The Fund may temporarily depart from this investment policy in response to the Investment
Adviser’s perception of extraordinary market, political or similar conditions. During these periods
and for as long as the Investment Adviser deems it necessary, the Fund may increase its holdings
of cash and near cash. In doing so, the Fund may succeed in avoiding losses, but may otherwise
fail to achieve its investment objective.

Rather worrying perhaps?

[Alaric]

During these periods and for as long as the Investment Adviser deems it necessary, the Fund may increase its holdings
of cash and near cash. In doing so, the Fund may succeed in avoiding losses, but may otherwise fail to achieve its investment objective.

Rather worrying perhaps?

They are giving themselves emergency powers to depart from fully tracking their indexes. These funds are structured as OEICs, I believe, so that would enable them to cope better with a run of unitholders wishing to redeem.

[dspp]

During these periods and for as long as the Investment Adviser deems it necessary, the Fund may increase its holdings
of cash and near cash. In doing so, the Fund may succeed in avoiding losses, but may otherwise fail to achieve its investment objective.

Rather worrying perhaps?

They are giving themselves emergency powers to depart from fully tracking their indexes. These funds are structured as OEICs, I believe, so that would enable them to cope better with a run of unitholders wishing to redeem.

It also means they would not be forced to follow a flash crash blindly, i.e. down then up. They could instead choose to diagnose a flash crash and sit it out in cash or near cash. I think this is the primary reason for this clause rather than redemption concerns. Just my opinion.

regards, dspp

[xxd09]

Vanguard investors tend to be a steady bunch and will buy and hold especially through crashes
Hopefully this will obviate the need for the fund managers to resort to this option as calls for redemptions will be minimal from this batch of investors

xxd09

[dspp]

Vanguard investors tend to be a steady bunch and will buy and hold especially through crashes
Hopefully this will obviate the need for the fund managers to resort to this option as calls for redemptions will be minimal from this batch of investors

xxd09

Yes, but if a Vanguard fund represents multiple indices (say VWRL) and one market (say LSE) has a complete wobbly in a flash crash then Vanguard themselves would ordinarily have to blindly rebalance to follow the crash. So the whole of their (say) VWRL holdings would get exposed to the turmoil. This way they are at least able to consider the option of saying "hold tight, move the LSE stuff to near cash, pause & reflect". Whether that option would be used, and if used whether it would be wise to have used it, is another matter. However it does at least give them the option.

At least that is my reading of the tweak to their rules they have just issued (which is of course for the Life Strategy stuff, not VWRL).

regards, dspp

[CliffEdge]

Thanks for your replies. If I understand you all correctly, this clause would only be invoked in the event of extreme circumstances.

For example, if the LS fund has certain proportions of different indexes and one collapses, there would be a danger of automatic rebalancing to restore those certain proportions and that could be a mistake.

This would suggest to me that it may be better to buy separate funds to mirror the LS fund and then if one collapsed, it would be up to the investor herself to decide how to respond.