Don't Worry About Vanguard's Manager Turnover
No one likes to see a skilled manager step down from a time-tested fund. But we think investors in Vanguard funds steered by Earl McEvoy shouldn't be overly concerned by his imminent departure.
McEvoy, who will retire in June, contributed to solid records at all three funds in his charge. He's managed the bond portion of Wellesley Income (symbol VWINX), a $13 billion fund that typically keeps 60% of its assets in bonds and the rest in stocks, since 1982. From his start through February 22, the fund returned 11.1% annualized. That compares with the annualized 12.4% return of Standard & Poor's 500-stock index over the same period, although Wellesley was less than half as volatile.
(That a fund with such a high bond content could come as close as Wellesley has to the all-stock S&P index is impressive. Keep in mind, though, that long-term Treasury bonds yielded nearly 15% in early 1982. So, because bond prices move inversely with yields, the fund's bond portion has had a strong tailwind over the past quarter-century.)
Performance at McEvoy's other two funds has been solid as well. Vanguard High-Yield Corporate (VWEHX), which he has managed since 1984, returned 6.5% annualized over the past 15 years through February 22, beating 75% of all junk-bond funds. Meanwhile, Vanguard Long-Term Investment Grade (VWESX), which McEvoy has managed since 1994, beat 70% of its peers over the past ten years, returning 5.9% annualized.
Fortunately for investors, McEvoy's replacements are no novices. McEvoy, a partner at Wellington Management, the funds' sub-adviser, will pass on the reins to Wellington colleagues.
"At other fund shops I might be more worried, but Wellington has been consistently good at handling transitions like this," says Morningstar analyst Lawrence Jones. Wellington, which manages 14 Vanguard funds, is known for intensive research and a knack for hanging on to its employees.
John Keogh, another long-termer, will take over bond investments at Wellesley Income. Keogh has been with Wellington since 1979, amassing broad experience in managing bond and money-market portfolios for private clients.
He's managed the bond side of Vanguard Wellington (VWELX), a $49 billion balanced fund, since November 2005. Over the past year, the fund, which invests about 35% of assets in bonds, returned 2.8%, beating 90% of balanced funds with similar allocations.
A clean sweep is coming to Wellesley. Like McEvoy, Jack Ryan, who picks the fund's stocks, is scheduled to depart in June. Ryan's successor, Michael Reckmeyer, has been an analyst for Wellesley for 13 years. "We have a really long-term planning process around succession," says Vanguard's Joe Brennan, who oversees the company's relationship with external advisers.
Lucius Hill, who joined Wellington in 1993, is taking over Long-Term Investment Grade. Hill has managed fixed-income investments for a quarter of a century, focusing on corporate bonds. The $5.7 billion fund invests primarily in corporate bonds with 20 to 30 years remaining until maturity. The fund has large stakes in the debt of utilities companies and financial institutions.
Michael Hong, 35, will take over at High Yield. Although Hong is less seasoned than Keogh or Hill, he has been Wellington's director of high-yield credit research, which is "the backbone of this fund," Brennan says. McEvoy "has relied on Michael for many years," he says. Under McEvoy, the $8.9 billion fund has leaned toward higher-quality junk bonds. At last report, the average credit quality of the portfolio was Ba3, which is the third highest junk rating.
All three funds benefit from Vanguard's ultra-low expense ratios. The High-Yield fund charges 0.26% per year and each of the other two charges 0.25%.