Benchmarking managed payout funds

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The Vanguard Managed Payout fund follows the endowment and foundation investing model, which seeks to operate in perpetuity while preserving capital and regularly spending a certain percentage of assets. This model seeks to realize these objectives by broad asset-class diversification, a disciplined spending policy, and a focus on long-term performance. The Vanguard Managed Payout Fund addresses its two-fold investment objective in its 2016 annual report report:[1]

"The Managed Payout Fund has a dual objective. In any given year, we try to outperform the benchmark on a risk adjusted basis, and in the long run we seek to provide a return that at least equals spending plus inflation. (If we spend 4% and inflation is 2%, the fund’s objective is to produce a return of 6% or more.) Meeting this objective is critical for making periodic distributions and preserving capital."

Policy portfolio

Vanguard benchmarks the Managed Payout Fund to the policy benchmark in the table below.[note 1] Historically,Vanguard has used three benchmarks during the fund's existence, twice changing the benchmark.[note 2] The fund's performance as measured by its historical tracking error is provided in the table referenced in the notes. Tab 1 refers to the asset allocation benchmark; tab 3 refers to the inflation target benchmark.[note 3]

Managed Index Fund Composite Index
Index Component Index weighting
CRSP US Total Market Index 36.00%
Bloomberg Barclays U.S. Aggregate Float Adjusted Index 24.50%
FTSE Global All Cap ex US Index 24.00%
Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged) 10.50%
Bloomberg Commodity Index 5.00%
Note:International stock benchmark returns are adjusted for withholding taxes.

Managed fund payouts

The Vanguard Managed Payout Fund distributes income monthly according to a managed distribution policy.[note 4] Vanguard reports the history of fund monthly per share income payouts. In addition, the fund can pay out an end of year payout.

The fund was originally one of three managed payout funds, each offering different asset allocations (growth, growth and income, and distribution portfolios), and each with a different payout percentage. In 2014 the growth and distribution funds were merged into the growth and income fund to produce the current fund. Prior to the merger, the growth and income fund managed distribution percentage was 5 per cent. Post fund merger, the payout percentage was reduced to 4 per cent.

Managed Payout fund monthly distributions per share[note 5] [2]
Year Managed Payout Fund Year end distribution
2016 0.0589 0.3600
2015 0.0589 0.7500
2014 0.0555 0.0400
2013 0.0704 0.9900
2012 0.0659 0.0000
2011 0.0647 0.0000
2010 0.0634 0.0000
2009 0.0699 0.0000
2008 0.0833 0.0000

The table below illustrates annual dollar income distribution, reflecting an approximate $100,000 dollar investment in the fund.

Annual income (Number of shares=5500)
Year Monthly annualized Year-end Total
2016 $3,887.40 $1,980.00 $5,867.40
2015 $3,887.40 $4,125.00 $8,012.40
2014 $3,663.00 $220.00 $3,883.00
2013 $4,646.40 $5,445.00 $10,091.40
2012 $4,349.40 $0.00 $4,349.40
2011 $4,270.20 $0.00 $4,270.20
2010 $4,184.40 $0.00 $4,184.40
2009 $4,613.40 $0.00 $4,613.40
2008 $5,497.80 $0.00 $5,497.80

Notes

  1. Current asset allocation for the fund can be found at:
  2. Historic changes in the Managed Payout Composite Index:
    Weighted June 30, 2014 through April 30, 2015
    • 42% CRSP US Total Market Index
    • 28% Barclays U.S. Aggregate Float Adjusted Index
    • 18% FTSE Global All Cap ex US Index
    • 7% Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged)
    • 5% Bloomberg Commodity Index (Dow Jones-UBS Commodity Index
    Weighted April 30, 2009 through January 31, 2014
    • 35% CRSP US Total Market Index (MSCI US Broad Market Index through May 31, 2013)
    • 12% Barclays U.S. Aggregate Float Adjusted Index (Barclays U.S. Aggregate Bond Index through December 31, 2009)
    • 15% FTSE Global All Cap ex US Index (MSCI All Country World ex USA Investable Market Index through May 31, 2013),\
    • 3% Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged)
    • 15% Citigroup Three-Month U.S. Treasury Bill Index
    • 10% Dow Jones-UBS Commodity Index
    • 10% REIT Spliced Index (MSCI US REIT Index adjusted to include a 2% cash position through April 30, 2009)
    International stock benchmark returns are adjusted for withholding taxes.

  3. This table provides Managed Payout Fund tracking error to benchmark indexes.

    (View Google Spreadsheet in browser, then File --> Download as to download the file.)
  4. The fund is designed to payout a percentage of account value determined by a formula. The payout rate percentage is 4%:
    The percentage is than applied to a hypothetical account balance that is an average of the past three years account value. The payout formula follows:

    Monthly distribution per share =
    Source: Fund Prospectus. Retrieved 1 June 2012.

  5. This table provides Managed Payout Fund dividend, capital gains, and return of capital distributions, expressed as distributions/average net assets. Data sources: fund annual reports EDGAR N-CSR forms and EDGAR NSAR forms. Retrieved 2 June 2012. The monthly per share distribution rate is provided in the Mo. distribution tab; the annual per-share return of capital distribution is also provided in a separate tab.

    (View Google Spreadsheet in browser, then File --> Download as to download the file.)

References

  1. 2016 annual report. Retrieved 27 November 2017.
  2. Inflation data comes from Consumer Price Index 1913 -, Minnesota Federal Reserve. Retrieved 1 April 2012, viewed November 21, 2017.

External links

  • See VPGDX for more information.