Will Vanguard kill the remaining Tax Managed funds?

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DetroitRed
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Will Vanguard kill the remaining Tax Managed funds?

Post by DetroitRed » Sat Oct 19, 2013 4:36 pm

Now that both the Tax Managed International and TM Growth and Income are going away, anyone want to conjecture on whether Vanguard will kill the remaining Tax Managed funds?

For Bogleheads this would be a bad thing, because as has been discussed on this board, the following Tax Managed combo is very useful to replicate Vanguard Total Stock Market (TSM) for tax loss harvesting (TLH):

80% Vanguard Tax-Managed Capital Appreciation (VTCLX)
20% Vanguard Tax-Managed Small-Cap (VTMSX)

This combo provides a close replication of TSM, fairly low management fees and provides 100% qualified dividends.

If Vanguard merged Tax-Managed Small-Cap (VTMSX) into Small Cap Admiral (VSMAX), this would be inferior because only about 74% of VTMSX's dividends are qualified (while 100% of Tax Managed Small Caps divs are qualified).

Vanguard also doesn't have another fund that follows the same index as Vanguard Tax-Managed Capital Appreciation (VTCLX). The closest is probably Vanguard Large-Cap Index, but it follows the CRSP US Large Cap Index (648 constituents), while VTCLX follows the Russell 1000 (currently 1004 constituents). Note I originally said, in error, that Large-Cap Index doesn't have an Admiral share class. It does.
Last edited by DetroitRed on Sat Oct 19, 2013 5:42 pm, edited 1 time in total.

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stevewolfe
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Re: Will Vanguard kill the remaining Tax Managed funds?

Post by stevewolfe » Sat Oct 19, 2013 4:51 pm

I'd be surprised if they would get rid of the TM Capital Appreciation and TM Small cap for the reasons you stated (they track different indexes than the replacement funds would track). I think that was the key to the merging of the other two TM funds - they had existing funds tracking the same index and the difference tax cost ratio from tax management was quite small.

If they would merge TM Capital Appreciation into Large Cap index (I don't think they will), i does have an admiral share class (VLCAX).

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rob
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Re: Will Vanguard kill the remaining Tax Managed funds?

Post by rob » Sat Oct 19, 2013 4:53 pm

No longer a reason to assume Vanguard is a long term fund provider... so I would say maybe. I suspect with the Cap App fund following a different index they would have to have a pretend vote.
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Barry Barnitz
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Re: Will Vanguard kill the remaining Tax Managed funds?

Post by Barry Barnitz » Sat Oct 19, 2013 5:13 pm

Hi:

Potential future mergers:

1. Vanguard TM Capital Appreciation Fund merges with Vanguard Russell 1000 index Fund.
2. Vanguard TM Small Cap Fund merges with Vanguard S&P 600 Small Cap Index Fund.

regards,
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Murray Boyd
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Re: Will Vanguard kill the remaining Tax Managed funds?

Post by Murray Boyd » Sat Oct 19, 2013 5:27 pm

If they closed TM Capital Appreciation I'd hope they would merge it with Total Stock Market.

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grabiner
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Re: Will Vanguard kill the remaining Tax Managed funds?

Post by grabiner » Sun Oct 20, 2013 9:27 pm

Unlike the two funds which were killed, TM Capital Appreciation and TM Balanced deliberately deviate from the stock index to minimize dividends, and they do this effectively. TM Capital Appreciation has a 1.70% yield, versus 1.91% for the Russell 1000 ETF with the same expense ratio. TM Balanced is a unique fund, a balanced fund which holds munis and thus can be held in a taxable account in a higher tax bracket. (I don't like the fund and recommend holding munis and TM Capital Appreciation separately, but the fund does serve the purpose of simplicity.)

TM Small-Cap could be killed in theory, but the S&P 600 Small-Cap ETF, which tracks the same index, is available as a fund only in an institutional class. And TM Small-Cap does have the advantage of 100% qualified dividends, while the S&P 600 ETF is usually only about 75% qualified. (On the other hand, this advantage was much more important for TM International with its higher yield, and that fund was killed.)
David Grabiner

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Barry Barnitz
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Re: Will Vanguard kill the remaining Tax Managed funds?

Post by Barry Barnitz » Mon Oct 21, 2013 2:23 am

grabiner wrote:Unlike the two funds which were killed, TM Capital Appreciation and TM Balanced deliberately deviate from the stock index to minimize dividends, and they do this effectively. TM Capital Appreciation has a 1.70% yield, versus 1.91% for the Russell 1000 ETF with the same expense ratio. TM Balanced is a unique fund, a balanced fund which holds munis and thus can be held in a taxable account in a higher tax bracket. (I don't like the fund and recommend holding munis and TM Capital Appreciation separately, but the fund does serve the purpose of simplicity.)

TM Small-Cap could be killed in theory, but the S&P 600 Small-Cap ETF, which tracks the same index, is available as a fund only in an institutional class. And TM Small-Cap does have the advantage of 100% qualified dividends, while the S&P 600 ETF is usually only about 75% qualified. (On the other hand, this advantage was much more important for TM International with its higher yield, and that fund was killed.)


Note:
The fund that is being "killed" is the Vanguard Developed Market Index Fund, which, like the Vanguard Tax-Managed Growth and Income Fund, will cease existence once it is merged. Here is what is actually to take place.

1. The Vanguard Tax-Managed Growth & Income will be reorganized to merge into the Vanguard S&P 500 index fund. Under the agreement passed by the fund's trustees, shareholders of the Tax-Managed Growth and Income Fund after the closing of the reorganization will receive Admiral™ Shares of the 500 Index Fund in exchange for their Admiral Shares or Institutional Shares of the Tax-Managed Growth and Income Fund, which will cease operations. Reference: tmgrowthandincomemergersupp.htm - Generated by SEC Publisher for SEC Filing

2. The Vanguard Developed Market Index fund will be reorganized to merge into the Vanguard Tax-Managed International fund. Under the agreement passed by the fund's trustees, shareholders of the Developed Market Index fund after the closing of the reorganization will receive Investor Shares, AdmiralTM Shares, Institutional Shares, or Institutional Plus Shares, as appropriate, of the Tax-Managed International Fund in exchange for their shares of the Developed Markets Index Fund, and the Developed Markets Index Fund will cease operations. Investor Shares and Institutional Plus Shares of the Tax-Managed International Fund will be created in anticipation of the merger. Reference:final497e.htm - Generated by SEC Publisher for SEC Filing

regards
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czeckers
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Re: Will Vanguard kill the remaining Tax Managed funds?

Post by czeckers » Mon Oct 21, 2013 7:45 am

When I was looking into what funds to invest in in my taxable portfolio given my relatively high tax situation, I came to the conclusion that VG's total stock market index and VG total international index were as tax efficient for me as the tax-managed options. The only one that still makes sense for me is the tax-managed small-cap fund.

-K
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DetroitRed
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Re: Will Vanguard kill the remaining Tax Managed funds?

Post by DetroitRed » Mon Oct 21, 2013 9:51 am

Re: Qualified dividends

I guess it's also possible that the new domestic CRSP indexes Vanguard started using in early 2013 will have higher qualified dividends (QDIs) than the MSCI indexes they replaced.

Seems unlikely, but if that happens it'll make things much better for tax loss harvesting and US factor weighting. Many Bogleheads would be happy if Small-Cap Value Index started to provide 100% qualified dividends.


Note that the Vanguard Extended Market Index Fund didn't change to a CRSP index. It's still following the S&P Completion Index which traditionally only provides about 80% qualified dividends.

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