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Fund Family Shareholder Association
MANAGED PAYOUT
(the consolidated
version of the three original Managed
Payout funds) has been a moving target
over the past 13 months. Its portfolio of
funds has been added to and subtracted
from. And the surviving fund’s objec-
tives have been tweaked. The latest
changes to the fund’s portfolio occurred
in April. It’s enough to make your head
spin. And maybe that’s one reason
investors aren’t biting. Managed Payout
has seen almost no new money flow
into it. One has to ask the question:
Are all these changes, which haven’t
attracted new shareholders, really help-
ing existing shareholders?
The short answer is that it’s an
improvement, but not enough to war-
rant buying the fund. I just don’t see
the value in it. Why? Well, let’s start by
retracing the path we’ve traveled over
the past year.
As a reminder, the original three
Managed Payout funds, introduced to
some fanfare in May 2008, were mod-
eled after college endowments with the
aim of providing predictable income to
shareholders while also growing or at
least maintaining the level of invested
capital. A committee at Vanguard, led
by John Ameriks, who runs the firm’s
active equity investing group, actively
manages the allocation across a wide
MANAGED PAYOUT
A Year of Changes
range of assets from stocks and bonds
to commodities and real estate.
The most dramatic change over the
past year was the merger of the three
original Managed Payout funds, which
each targeted different distribution and
growth levels, into a single offering. The
new fund, which is the old Managed
Payout Growth & Distribution fund,
seeks to make predictable monthly dis-
tributions while having those distribu-
tions
and
the invested capital grow with
inflation. The fund targets a 4% annual
distribution rate—down from a 5% tar-
get before the merger.
While the merger clearly has been
the most far-reaching change to the
Managed Payout suite, there have been a
number of other changes to the portfolio
over the past year. The table below tracks
the allocation of the old Managed Payout
Growth & Distribution fund and the new
Managed Payout fund since April 2013.
For the most part, the changes Ameriks
and company have made have been to
shareholders’ benefit, but the most recent
trade has me scratching my head.
Let’s start one year ago, in May
2013, when
Total International Bond
was introduced to the mix by trimming
the position in
Total Bond Market
. At
the same time, exposure to
REIT Index
was cut in half and the proceeds were
added to
Total International Stock
.
Both trades have benefited sharehold-
ers. Since the end of May 2013, foreign
bonds have outpaced domestic bonds
3.6% to 2.3%, and REIT Index has
only gained 9.7% to Total International
Stock’s 15.7% gain.
In December 2013, yet another new-
comer to the Vanguard stable,
Global
Minimum Volatility
, was added to the
Managed Payout mix. The position was
established by selling down holdings in
Total Stock Market
, Total International
Stock and commodities. Since incep-
tion, Global Minimum Volatility has
returned 8.7% to Total Stock Market’s
8.8% gain and Total International’s gain
of 8.5%—but it is far too soon to call
this trade a success or a failure.
Also, last December, REIT Index
was removed from the portfolio, and
the proceeds were added to Total
International Bond. So far this move
has not benefited shareholders, as REIT
Index is up 16.3% this year, well ahead
of Total International Bond’s 3.7% gain.
The merger of the three Managed
Payout funds into one occurred in
January 2014. There was essentially no
change from the old Managed Payout
Growth &Distribution fund to the “new”
Managed Payout fund—same alloca-
tions, but a lower distribution hurdle.
Moving Target
Managed Payout*
Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14
Total Stock Market
39.8% 40.0% 39.7% 39.9% 39.6% 39.6% 39.6% 39.4% 25.1% 24.7% 25.0% 24.6% 25.0%
Total International Stock
17.2% 21.9% 22.2% 22.1% 22.1% 22.1% 22.1% 21.9% 20.0% 19.6% 19.9% 20.3% 15.1%
Global Minimum Volatility
— — — — — — — — 20.0% 20.3% 20.4% 20.4% 20.3%
Emerging Markets Stock
— — — — — — — — — — — — 4.8%
Stocks Sub-Total
57.0% 61.9% 61.9% 62.0% 61.7% 61.7% 61.7% 61.3% 65.1% 64.6% 65.3% 65.3% 65.2%
Total Bond Market/TB Market II
10.0% 7.1% 7.1% 7.0% 7.0% 7.0% 7.0% 7.0% 8.1% 7.8% 7.8% 7.8% 12.9%
Intermediate-Term Investment-Grade 5.1% 5.1% 5.1% 5.0% 5.2% 5.2% 5.2% 5.0% 5.0% 4.9% 4.9% 4.8% —
Total International Bond
— 3.0% 3.0% 3.0% 2.9% 2.9% 2.9% 2.9% 6.9% 7.4% 7.1% 7.1% 7.0%
Bonds Sub-Total
15.1% 15.2% 15.2% 15.0% 15.1% 15.1% 15.1% 14.9% 20.0% 20.1% 19.8% 19.7% 19.9%
Market Neutral
9.9% 10.1% 10.1% 10.1% 10.2% 10.2% 10.2% 10.1% 9.9% 10.2% 9.9% 10.0% 9.9%
Commodities
7.8% 7.9% 7.8% 7.9% 7.9% 7.9% 7.9% 8.8% 5.0% 5.1% 5.0% 5.0% 5.0%
REIT Index
10.2% 4.9% 5.0% 5.0% 5.1% 5.1% 5.1% 4.9% — — — — —
Other Sub-Total
27.9% 22.9% 22.9% 23.0% 23.2% 23.2% 23.2% 23.8% 14.9% 15.3% 14.9% 15.0% 14.9%
Total
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
*Managed Payout Growth & Distribution became Managed Payout in January 2014.
