Vanguard Announces Changes to Money Market Fund Lineup

VALLEY FORGE, PA (August 27, 2020)—Vanguard today announced the following changes to its taxable money market fund lineup:

  • Vanguard Prime Money Market Fund will be reorganized into a government money market fund and renamed Vanguard Cash Reserves Federal Money Market Fund.
  • Vanguard to lower the cost of investing for more than one million Prime fund investors by dropping the investment minimum of the fund’s Admiral Shares to $3,000 from $5 million.
  • Vanguard Treasury Money Market Fund has reopened to new investors.

Vanguard has a successful track record of refining its fund lineup to strengthen its offerings, meet investors’ evolving needs, and adapt to shifting market dynamics. The $125.3 billion Prime fund will transition to a government money market fund and be renamed Vanguard Cash Reserves Federal Money Market Fund in late September 2020 to better meet investor needs and lower risk. Having observed and navigated two market crises in the past 12 years, Vanguard believes it’s better to seek to provide clients with a higher yield through lower expenses on a secure government portfolio than incurring risk in the prime market.

The fund will enhance its credit quality and liquidity levels by investing almost exclusively in U.S. government securities, cash, and repurchase agreements that are collateralized solely by U.S. government securities or cash. Given the current low-interest rate market environment and tight credit spreads, Vanguard has already increased the fund’s exposure to government securities, while commensurately decreasing credit risk by letting non-government holdings, such as commercial paper, mature.

“Vanguard investors prioritize capital preservation for their money market investments, and we believe that the rewards of even the most conservatively managed prime funds are no longer worth the risk,” said Vanguard Chief Investment Officer Greg Davis. “We are committed to structuring and managing our money market funds prudently while preserving their safety and liquidity, and are confident these changes will best position the fund to continue to meet the expectations of our clients, while still providing a competitive yield over the long term.”

For the past 30 years, Vanguard’s government money market funds have delivered strong returns relative to many prime money market funds by keeping costs exceptionally low[1]. Enabled by decades of experience and deep manager expertise, Vanguard’s taxable government money market funds have outperformed their peer group averages and are ranked within the top decile of peers over the 1-, 3-, 5-, and 10-, year periods[2].

For more than four decades, Vanguard’s Prime fund has provided investors with a stable cash alternative to save for short-term goals, build emergency reserves, or complement a portfolio of stocks and bonds. The fund has taken meaningfully less credit risk relative to peers over the years to ensure liquidity in even the most challenging markets. For example, the Prime fund maintained a 33% allocation to government securities—in contrast to the industry average of less than 3%—leading into the sharp volatility of March 2020[3]. Over the past two decades, Vanguard’s approach has helped Prime Admiral Shares outperform 97% of the competition[4]. However, Prime Investor Shares have only slightly outperformed Vanguard Federal Money Market Fund over this same time period[5]. This shift in the fund’s portfolio underscores Vanguard’s belief that government money market funds can better meet investor needs for capital preservation and liquidity while avoiding undue risk.

In addition, Vanguard is lowering the cost of investing for more than one million Prime fund shareholders, who will now be eligible for a lower expense ratio of 0.10%. Effective immediately, the investment minimum of Prime Admiral Shares will be reduced from $5 million to $3,000. Relative to the 0.16% expense ratio for Prime Investor Shares, this change is expected to deliver an estimated $64 million in aggregate investor savings, based on current total assets[6].

Vanguard encourages qualifying clients to convert to Admiral Shares by visiting vanguard.com. Any remaining Investor class shareholders will be automatically converted to Admiral Shares beginning in September 2020 and continuing through 2021.

Vanguard Treasury Money Market Fund reopens

Vanguard also announced the reopening of its $38.9 billion Treasury Money Market Fund. Vanguard closed the fund in April 2020 to protect existing shareholders following a spike in demand for government money market funds during the first-quarter. Vanguard sought to preserve the fund’s yield by preventing excessive purchases of low-yielding government securities over a short time period. Vanguard expects that new cash flow will no longer have the same dilutive effect and has reopened the fund to new investors.

There will be no changes to the $196.4 billion Federal Money Market Fund, which will continue to operate as a government money market fund that meets the needs of a broad range of investors, while continuing to serve as a sweep vehicle for retail brokerage clients.

Vanguard: A fixed income leader

Vanguard Fixed Income Group oversees more than $1.9 trillion in assets globally, including $390.7 billion in money market assets. Vanguard’s in-house fixed income management team serves as the sole manager of Vanguard’s money market lineup and also manages active and index bond funds across a range of maturities in the taxable and tax-exempt markets.

Nafis T. Smith is head of taxable money markets and the portfolio manager of the Prime and Treasury Funds. Mr. Smith joined Vanguard in 2003 and has more than 16 years of investment experience.

 

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About Vanguard
Vanguard is one of the world’s largest investment management companies. As of July 31, 2020, Vanguard managed $6.3 trillion in global assets. The firm, headquartered in Valley Forge, Pennsylvania, offers more than 426 funds to its more than 30 million investors worldwide. For more information, visit vanguard.com.

Asset figures as of July 31, 2020 unless otherwise noted.

[1] For the one-, three-, five-, and ten-year periods ended June 30, 2020, two of two Vanguard government money market funds outperformed 70% of all prime money market funds. (Source: Lipper, a Thomson Reuters Company.) Results will vary for other time periods. Only funds with a minimum ten-year history were included in the comparison. Note that the competitive performance data shown represent past performance, which is not a guarantee of future results, and that all investments are subject to risks. For the most recent performance, visit our website at vanguard.com/performance.

[2] For the one-, three-, five-, and ten-year periods ended June 30, 2020, two of two Vanguard government money market funds outperformed their peer group averages. (Source: Lipper, a Thomson Reuters Company.) Results will vary for other time periods. Only funds with a minimum quarter-, one-, three-, five-, or ten-year history, respectively, were included in the comparison. Note that the competitive performance data shown represent past performance, which is not a guarantee of future results, and that all investments are subject to risks. For the most recent performance, visit our website at www.vanguard.com/performance.

[3] Source: Crane Data

[4] For the 20-year period ended June 30, 2020, Vanguard Prime Money Market Fund Admiral Shares outperformed 97% of its peer-group average. (Source: Lipper, a Thomson Reuters Company.) Results will vary for other time periods. Only funds with a minimum 20-year history were included in the comparison. Note that the competitive performance data shown represent past performance, which is not a guarantee of future results, and that all investments are subject to risks. For the most recent performance, visit our website at vanguard.com/performance.

[5] Note, Vanguard Federal Money Market Fund offers only one share class. The performance of Vanguard Prime Money Market Fund Investor Shares is as follows: 1 year, 1.52%; 5 years, 1.25%; 10 years, 0.64%; 20 years, 1.68%; 30 years, 2.82%; since inception (June 4, 1975), 4.85%. The fund’s current 7-day SEC yield (August 21, 2020) is 0.05%. The fund’s expense ratio is 0.16%. The performance of the fund’s benchmark (Money Market Funds Average) is as follows: 1 year, 1.16%; 5 years, 0.89%; 10 years, 0.44%. The performance of Vanguard Federal Money Market Fund Investor Shares is as follows: 1 year, 1.39%; 5 years, 1.10%; 10 years, 0.55%; 20 years, 1.60%; 30 years, 2.75%; since inception (July 13, 1981), 4.09%. The fund’s current 7-day SEC yield (August 21, 2020) is 0.09%. The fund’s expense ratio is 0.11%. The performance of the fund’s benchmark (US Government Money Market Funds Average) is as follows: 1 year, 0.93%; 5 years, 0.68%; 10 years, 0.34%. Performance data as of June 30, 2020. Sources: Bloomberg; Lipper, a Thomson Reuters Company. The performance are data shown represent past performance, which is not a guarantee of future results. Investment returns will fluctuate. Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance. The yield quotation more closely reflects the current earnings of the fund than the total return quotation. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

[6] Estimated savings is the difference between prior and current expense ratios multiplied by eligible average AUM. Eligible average AUM is based on the daily average assets over the last 12-months (August 2019 to July 2020).

For more information about Vanguard funds, visit vanguard.com to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.

Vanguard Prime Money Market Fund (until late September 2020): The Fund is only available to retail investors (natural persons). You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.

Vanguard Cash Reserves Federal Money Market Fund (after late September 2020), Vanguard Federal Money Market Fund, and Vanguard Treasury Money Market Fund: You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.

All investing is subject to risk, including the possible loss of the money you invest.

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