Vanguard's four funds that make up the LifeStrategy series, which features a mix of passively and actively managed funds, will adopt an all-index approach in order to lower costs and simplify the portfolio, the company announced.
The funds will invest solely in their three broad market component funds: Vanguard Total Stock Market Index Fund, Vanguard Total International Stock Index Fund and Vanguard Total Bond Market II Index Fund. They will gradually eliminate exposure to their actively managed component funds, Vanguard Asset Allocation Fund and Vanguard Short-Term Investment-Grade Fund, according to Vanguard.
In addition to lowering costs and simplifying the portfolio, the change will bring a more consistent approach to Vanguard's global line of lifecycle funds, said Vanguard CEO Bill McNabb.
Once the transition is complete, the expense ratios of the LifeStrategy Funds are expected to decline two to four basis points to an average of 0.14% to 0.18%, according to Vanguard.
The series will consist of a growth fund of 80% stocks ad 20% bonds, a moderate growth fund of 60% and 40%, a conservative growth fund of 40% and 60%, and an income fund of 20% and 80%, according to Vanguard.
Vanguard also has modified the investment strategy of the $8.6 billion Vanguard Asset Allocation Fund and named new investment advisors. Vanguard's Quantitative Equity and Fixed Fund groups have assumed investment advisory responsibilities from Mellon Capital Management Corporation and will gradually transition the fund to a static 60% stocks and 40% bonds portfolio, according to Vanguard.
A preliminary proxy statement has been filed with the SEC that seeks shareholder approval to merge the Asset Allocation Fund into the $11.1 billion Vanguard Balanced Index Fund. The approach followed by the Balanced Index Fund is expected to provide competitive returns over the long term with less risk, McNabb says.