Merger and advisor changes ahead for Vanguard growth equity funds

December 17, 2018

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In an effort to enhance investor outcomes, Vanguard today announced the merger of two of its large-capitalization growth funds, targeted for April 5, 2019. The $15.1 billion Vanguard MorganTM Growth Fund will merge into the $10.1 billion Vanguard U.S. Growth Fund. The reconfigured U.S. Growth Fund will continue to offer AdmiralTM and Investor share classes.

The merger will combine two actively managed large-cap growth funds. Both seek to provide long-term capital appreciation, employ a fundamental stock-selection process that emphasizes stocks with strong earnings potential, and use a multimanager structure.

The reconfigured U.S. Growth Fund will pursue a large-cap growth investment strategy that is substantially similar to that of the predecessor fund. Merging the funds aims to achieve greater efficiencies in administration and investment management, which could lead to lower expense ratios and potentially better investor outcomes over time. The investment advisors for the new U.S. Growth Fund are a select subset of the predecessor funds' advisors, who will be realigned.

"We employ a rigorous evaluation process in overseeing our funds and advisors to ensure we provide sound, enduring offerings that meet the long-term needs of our clients," said Matthew Brancato, principal and head of Vanguard's Portfolio Review Department. "We have a long track record of product leadership and making changes that we believe are in the best interests of our clients, including merging funds, changing advisors, modifying mandates, and closing and liquidating funds."

Key dates

December 17, 2018Morgan Growth Fund is closed to new investors.
March 29, 2019Morgan Growth Fund is closed to new/additional investments from existing shareholders.
On or about April 5, 2019The merger is complete.

Investment-only Morgan Growth Fund clients who do not take action will have their assets and any future allocations to the fund directed to the U.S. Growth Fund on the merger date, on or about April 5, 2019.

Full-service recordkeeping clients offering the Morgan Growth Fund who do not wish to proceed with the merger are kindly asked to provide direction to your Vanguard representative by February 15, 2019. Otherwise, Morgan Growth Fund allocations and assets will move to the U.S. Growth Fund as follows:

  • Beginning March 29, 2019, all Morgan Growth Fund allocations will be directed to the U.S. Growth Fund.
  • On or about April 5, 2019, all Morgan Growth Fund assets will be merged into the U.S. Growth Fund.

The table below reflects current and estimated expense ratios of Investor and Admiral Shares of the funds.

Share classMorgan Growth Fund (expense ratio before merger)U.S. Growth Fund (expense ratio before merger)U.S. Growth Fund (estimated expense ratio after merger)
Investor 0.38%0.43%0.38%
Admiral0.28%0.30%0.28%

During the transition period, a portion of assets in the Morgan Growth Fund will be managed by Vanguard's Equity Index Group in order to align with the U.S. Growth Fund's strategy as the merger date approaches.

Realignment of investment advisors

The U.S. Growth Fund will retain four of five pre-merger advisory firms: Baillie Gifford Overseas Ltd.; Jackson Square Partners, LLC; Jennison Associates LLC; and Wellington Management Company LLP. The fund will also add an advisor, Vanguard Quantitative Equity Group, which has served as one of four Morgan Growth Fund advisors. William Blair Investment Management, LLC, will no longer serve as an advisor to the U.S. Growth Fund.

At the same time, Frontier Capital Management Co., LLC, will move from managing a portion of the Morgan Growth Fund to managing a portion of Vanguard Mid-Cap Growth Fund.

Other investment advisor changes

Vanguard announced advisor changes to the $4.1 billion Mid-Cap Growth Fund and the $663 million Growth Portfolio of Vanguard Variable Insurance Fund.

  • Effective December 17, 2018, the Mid-Cap Growth Fund will move from a two-manager to a three-manager approach. Newly added to the fund are: Frontier Capital Management Co., LLC, a long-tenured subadvisor for Vanguard; and a growth equity team from Wellington Management led by Timothy Manning. RS Investments, one of the current Mid-Cap Growth Fund advisors, will remain and will add Paul Leung, CFA, as a portfolio manager. The expected expense ratio of the Mid-Cap Growth Fund (0.35%) represents a slight decrease of one basis point.
  • William Blair Investment Management, which had been an advisor to the Mid-Cap Growth Fund and the Growth Portfolio of Vanguard Variable Insurance Fund, will no longer serve as an advisor to any Vanguard portfolio, effective in December 2018.
  • Also effective in December 2018, Paul E. Marrkand, CFA, a senior managing director and equity portfolio manager at Wellington Management who had managed the firm's portion of the Morgan Growth Fund since 2005, will no longer manage a Vanguard portfolio.
  • Jackson Square Partners and Wellington Management will continue to serve as advisors to the Growth Portfolio of Vanguard Variable Insurance Fund. The Growth Portfolio's expected expense ratio (0.39%) represents a slight decrease of one basis point.

Changes reflect Vanguard's portfolio oversight

The merger combines two actively managed large-cap growth funds with venerable histories. The U.S. Growth Fund is Vanguard's oldest growth fund with an inception date of January 6, 1959. The Morgan Growth Fund was launched on December 31, 1968, and was named after Walter L. Morgan, who founded Wellington and established Vanguard's first mutual fund, Vanguard Wellington™ Fund, which began operations in 1929.

Each fund advisor is subject to supervision by a 20-person team responsible for oversight and manager search within Vanguard's Portfolio Review Department, Vanguard senior management, and the funds' officers and trustees. This multi-tiered, rigorous oversight approach emphasizes qualitative factors of each advisor's investment professionals, philosophy, and process, as well as quantitative factors, including portfolio characteristics and performance.

Vanguard's multimanager approach

Vanguard has employed the multimanager approach since 1987. We follow such an approach where we believe a combination of distinct yet complementary managers will reduce portfolio volatility, provide potential for long-term outperformance, and mitigate manager risk.

Following the merger of the Morgan Growth and the U.S. Growth Funds, Vanguard will employ a multi-manager structure for 17 of our 32 actively managed U.S.-domiciled equity and balanced funds.

Notes:

  • All investing is subject to risk, including the possible loss of the money you invest.
  • CFA® is a registered trademark owned by CFA Institute.
  • All asset figures are as of November 30, 2018, unless otherwise noted.