Vanguard is changing the equity and fixed income allocations for its Vanguard STAR Fund (VGSTX), a balanced fund based on several underlying actively managed Vanguard stock and bond funds, starting early next year.
The allocation changes are aimed at improving long-term results by adding balance to the fund’s equity allocation and boosting flexibility on the fixed income portion, the giant asset manager said Friday.
The fund's investment objective, principal investment strategies and policies will remain the same. Vanguard plans to update the fund's composite benchmark to reflect the changes to its underlying investments.
Changes to the equity allocation include the addition of Vanguard Dividend Growth Fund and Vanguard International Core Fund, and removal of Vanguard Explorer Fund. The adjusted allocations and addition of new funds are expected to achieve better style balance and reduce risk, Vanguard said.
The fund's fixed income portion will be allocated to a new fund, the Vanguard STAR Core-Plus Bond Fund (VCPSX), which will follow the same investment philosophy and process as Vanguard Core-Plus Bond Fund. This new fund, intended for use only within the Vanguard STAR Fund portfolio, is expected to launch by late first quarter in 2025.
Vanguard’s core-plus bond strategy provides investors a single-fund solution that gives Vanguard’s fixed income group, or FIG, the flexibility to add value across the full universe of taxable investment grade, high-yield and emerging markets bonds. This flexibility enables the group to strategically capitalize on opportunities to add alpha using factors such as credit quality, maturity and interest rates, Vanguard said.
“For nearly 40 years, the Vanguard STAR Fund has provided investors an actively managed, balanced approach which seeks long-term capital appreciation and income in a cost-efficient manner,” said Dan Reyes, who heads Vanguard's portfolio review department. “The upcoming changes to the fund demonstrate Vanguard’s longstanding commitment to provide low-cost, active investment solutions for long-term investors and position the fund to serve investors well over the next 40 years.”
Vanguard expects to start the allocation transition in the upcoming first quarter.
"The allocations across U.S. stocks, foreign stocks and bonds aren’t really changing. Currently, STAR is close to a 60/40 stock/bond fund, and it looks like it will remain there," Daniel Sotiroff, senior manager research analyst at Morningstar, told ThinkAdvisor by email.
"Vanguard Dividend Growth Fund is replacing Vanguard Explorer Fund. Dividend Growth is a large blend fund while Explorer is a small growth fund. Essentially, it’s a shift from small- and mid-cap stocks in the Explorer fund to more style-neutral large-caps in Dividend Growth. This only affects 6.2% of the overall portfolio, so it’s not a huge adjustment," Sotiroff said.
"Vanguard International Core Stock Fund is replacing equal parts of the allocation to International Value and International Growth. It doesn’t look like there will be a big shift in style as value and growth tend to offset each other, and International Core Stock is a style-neutral (or) blend fund," he added.
