Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
If you own shares in this fund you ought to log onto your account as soon as possible as the fund is changing how it is managed. In addition, there is an opportunity to lower your expense ratio, provided you wish to continue holding the fund in light of its revised approach.
497 1 f6773d1.htm VANGAURD PRIME MONEY MARKET FUND 497
Vanguard Prime Money Market Fund Supplement Dated August 27, 2020, to the Prospectus and Summary Prospectus Dated December 20, 2019
Change in Strategy, Name, and Designation
The board of trustees (the “Board”) of Vanguard Prime Money Market Fund (the “Fund”) has approved changes to the Fund’s investment strategy and name, and a change in the Fund’s designation to a “government” money market fund. These changes will be effective on or about September 29, 2020.
The Fund is currently designated as a “retail” money market fund. The Fund invests primarily in high-quality, short-term money market instruments, including certificates of deposit, banker’s acceptances, commercial paper, Eurodollar and Yankee obligations, and other money market securities, including securities issued by the U.S. government or its agencies and instrumentalities. The Fund invests more than 25% of its assets in the financial services industry.
The Board has determined that it is in the best interests of the Fund and its shareholders to change the Fund’s designation to a “government” money market fund. Pursuant to Rule 2a-7 under the Investment Company Act of 1940, a government money market fund is required to invest at least 99.5% of its total assets in cash, U.S. government securities, and/or repurchase agreements that are collateralized solely by U.S. government securities and/or cash (“government securities”).
Accordingly, effective on or about September 29, 2020, the Fund will invest at least 99.5% of its total assets in government securities and the Fund’s name will change to Vanguard Cash Reserves Federal Money Market Fund. The Fund will continue to invest more than 25% of its assets in the financial services industry (i.e., issuers principally engaged in providing financial services to consumers and industry), which includes securities issued by government-sponsored enterprises, such as the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”), and the Federal Home Loan Banks. Currently, the Fund has no limit on its ability to invest in government securities, and will continue to increase such investments prior to changing its designation to a government money market fund.
In addition, in connection with the change in the Fund’s name, the Board also approved the implementation of a policy for the Fund to invest, under normal circumstances, at least 80% of its assets in securities issued by the U.S. government and its agencies and instrumentalities. This policy will become effective concurrent with the other changes to change the Fund’s designation to a government money market fund.
Lower Investment Minimum
The Board has also approved lowering the investment minimum for AdmiralTM Shares of the Fund to $3,000, effective immediately. Investors may convert their Investor Shares to Admiral Shares at any time by accessing their account at vanguard.com or by contacting Vanguard.
It is anticipated that all of the outstanding Investor Shares of the Fund will be automatically converted to Admiral Shares beginning in the fall of 2020 and continuing through 2021. Once all investors have been converted from Investor Shares to Admiral Shares, the Fund’s Investor Share class will be eliminated.
Over the past two decades, Vanguard’s approach has helped Prime Admiral Shares outperform 97% of the competition. However, Prime Investor Shares have only slightly outperformed Vanguard Federal Money Market Fund over this same time period. This shift in the fund’s portfolio [to US government securities] underscores Vanguard’s belief that government money market funds can better meet investor needs for capital preservation and liquidity while avoiding undue risk.
Pardon a bit of cynicism here, but it doesn't take two decades to come to this conclusion. Unless something unspoken has changed, like risk. Not necessarily risk to the investor, but to Vanguard. Jane Bryant Quinn wrote in 1990:
The last year has seen at least two near-misses. Integrated Resources defaulted on commercial paper that was being held by some money funds, and paper owed by Mortgage & Realty Trust was threatened. Among the victims: funds carrying the good names of Value Line, Liquid Green, Alliance and T. Rowe Price.
In each case, the sponsor stepped in to absorb the loss. But if it hadn`t, the fund`s investors would have come up short.
Why doesn't Vanguard simply merge the fund with VMFXX? Prime MMF is going to have a similar portfolio anyway. So even if you stay with the fund, you'll get the lower yield of a government MMF. The ER of VMFXX is just one basis point more than the Admiral shares of Prime. With Prime MMF Admiral shares you lose the ability to write checks; with VMFXX you can still write checks.
(Filing excerpt from Shadow) These changes will be effective on or about September 29, 2020
(my comment) even if you stay with the fund, you'll get the lower yield of a government MMF The changes are still officially a week away, and sure enough the SEC yield of Prime has dropped to the same 0.05% yield as that of its Federal MMF. The fund already held 7/8 of its assets in government paper at the end of August.
If you can afford the $50K min, the Treasury MMF (VUSXX) now seems to be the winner in every way, if one can call a 0.06% yield "winning". It's safer since it holds all Treasuries, no repurchase agreements. In a taxable account it is state tax-free. And it is not losing its checkwriting feature (though you'd have to hold it through Vanguard's legacy mutual fund platform to be able to write checks directly against this fund).
With MMF yields this low even at Vanguard, it is hard to find reasons to use a MMF at all now.
Price’s ultra-short TRBUX (not equivalent to a money market fund) is normally pegged at $5.00 But has managed somehow to creep all the way up to $5.09 resulting (in part) in a 2.62% YTD return. This seems to me to be the financial equivalent of being “up the creek in a canoe without a paddle - and with thunder clouds on the horizon“. I don’t understand how they get out of this without investors taking a bath when the price eventually returns to $5.00. Everything I understand about the fund is that the $5 peg is the nominal NAV and they are loath to deviate from it very far for very long.
Looking at this from the perspective of a single bond may help. When you buy a bond, you lock in a total return to maturity. In some sense, it doesn't matter what market rates or prices do.
Think of a 1 year bond that pays 2% interest at maturity (simple interest, one payment). Say the market rate is currently 2%. So you can buy the bond at par ($100) that pays $102 at maturity ($100 principal plus 2% interest).
Now the market rate drops to 1%. The price of the bond jumps to $101 (approximately). A new purchaser still gets $102 at maturity. On a $101 investment, that's a net return of 1%. In contrast, since you bought the bond last week at $100, nothing has changed for you. You still get a 2% rate of return over the year on your $100 investment.
Instead of holding the bond, suppose you sell it and pocket a quick 1% gain. You've got to put that money somewhere, so you invest in another one year bond, which is now yielding 1% (new market rate). That new bond costs you $100 and pays out $101 ($100 principal plus $1 interest) at the end of the year.
No difference, you're right back where you started. At the end of the year, you've made 2%: 1% from the immediate gain and 1% from the interest over the year.
If we think in terms of a MMF holding that one bond, the price of the fund jumps as you described (in my example to $101/share). If it continues to hold the bond, the price will gradually fall back (to $100). But at the same time it will continue to earn the higher 2% interest rate. That will more than compensate for the declining value. The net return over the year will be 1%.
Alternatively, the fund could sell its bond immediately, and purchase a new one at par with a 1% coupon. The value of the fund would remain stable rather than dropping 1%, but over the next year the investors would receive only 1% in interest. Same net return.
This is why I like to look at SEC yield. Regardless of whether the fund continued to hold the 2% bond (now priced at $101) or swapped it for a 1% bond at par, the reported SEC yield would be the same 1%.
I’ll study this. Sorta makes sense. Was wondering earlier if it made sense to shift to their prime money market fund until TRBUX returned to near $5. Even if my worst case scenario were to happen (you’ve assured me it probably won’t), potential losses still appear minor compared to most anything else we invest in - a few % points I’d guess. With a fund like this it pays to stick with a firm known for caution (like TRP). Some of the ultra-shorts got roughed up pretty bad back in ‘08.
Note: msf posted while I was writing this; but I'll keep my write in place.
normally pegged at $5.00 But has managed somehow to creep all the way up to $5.09
TRBUX started life in 2012 with a NAV of $4.50. There is no normal NAV peg with a bond fund, eh?; only that some NAV's may remain in a tighter NAV range, which would likely be the case with the shortest of duration.
During the credit lock up period of March, this fund's NAV moved to $4.80.
'Course, if one wants to ride a wide pony in bonds, there is always ZROZ (long duration zero coupon bonds). In the month of March, the ride in two weeks was from a NAV high of $188 through a NAV low of $148..........a 21% swing. On the other hand, since inception in late 2009; the annualized 10 year return of ZROZ is 11%. Not unlike equity, one must pay attention with this etf; unless one chooses a buy and hold position to be maintained.
497 1 f6993d1.htm VANGUARD CASH RESERVES FEDERAL MONEY MARKET 497
Vanguard Cash Reserves Federal Money Market Fund
Supplement Dated September 29, 2020, to the Prospectus and Summary Prospectus Dated December 20, 2019 (as supplemented September 29, 2020)
Effective immediately, Investor Shares of Vanguard Cash Reserves Federal Money Market Fund (formerly known as Vanguard Prime Money Market Fund) are closed to new investors. The Fund’s Investor Shares will remain open to existing investors. You may convert your Investor Shares of the Fund to Admiral Shares at any time by contacting Vanguard.
It is anticipated that all of the Fund’s outstanding Investor Shares will be automatically converted to Admiral Shares beginning in the fourth quarter of 2020 and continuing through 2021. Once all outstanding shares are converted, the Investor share class will be eliminated.
Comments
497 1 f6773d1.htm VANGAURD PRIME MONEY MARKET FUND 497
Vanguard Prime Money Market Fund
Supplement Dated August 27, 2020, to the Prospectus and Summary Prospectus Dated December 20, 2019
Change in Strategy, Name, and Designation
The board of trustees (the “Board”) of Vanguard Prime Money Market Fund (the “Fund”) has approved changes to the Fund’s investment strategy and name, and a change in the Fund’s designation to a “government” money market fund. These changes will be effective on or about September 29, 2020.
The Fund is currently designated as a “retail” money market fund. The Fund invests primarily in high-quality, short-term money market instruments, including certificates of deposit, banker’s acceptances, commercial paper, Eurodollar and Yankee obligations, and other money market securities, including securities issued by the U.S. government or its agencies and instrumentalities. The Fund invests more than 25% of its assets in the financial services industry.
The Board has determined that it is in the best interests of the Fund and its shareholders to change the Fund’s designation to a “government” money market fund. Pursuant to Rule 2a-7 under the Investment Company Act of 1940, a government money market fund is required to invest at least 99.5% of its total assets in cash, U.S. government securities, and/or repurchase agreements that are collateralized solely by U.S. government securities and/or cash (“government securities”).
Accordingly, effective on or about September 29, 2020, the Fund will invest at least 99.5% of its total assets in government securities and the Fund’s name will change to Vanguard Cash Reserves Federal Money Market Fund. The Fund will continue to invest more than 25% of its assets in the financial services industry (i.e., issuers principally engaged in providing financial services to consumers and industry), which includes securities issued by government-sponsored enterprises, such as the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”), and the Federal Home Loan Banks. Currently, the Fund has no limit on its ability to invest in government securities, and will continue to increase such investments prior to changing its designation to a government money market fund.
In addition, in connection with the change in the Fund’s name, the Board also approved the implementation of a policy for the Fund to invest, under normal circumstances, at least 80% of its assets in securities issued by the U.S. government and its agencies and instrumentalities. This policy will become effective concurrent with the other changes to change the Fund’s designation to a government money market fund.
Lower Investment Minimum
The Board has also approved lowering the investment minimum for AdmiralTM Shares of the Fund to $3,000, effective immediately. Investors may convert their Investor Shares to Admiral Shares at any time by accessing their account at vanguard.com or by contacting Vanguard.
It is anticipated that all of the outstanding Investor Shares of the Fund will be automatically converted to Admiral Shares beginning in the fall of 2020 and continuing through 2021. Once all investors have been converted from Investor Shares to Admiral Shares, the Fund’s Investor Share class will be eliminated.
The Fund’s registration statement will be updated on or about September 29, 2020, to reflect these changes.
© 2020 The Vanguard Group, Inc. All rights reserved.
or
https://investornews.vanguard/changes-to-our-taxable-money-market-fund-lineup/
https://pressroom.vanguard.com/news/Press-Release-Vanguard-Announces-Changes-Money-Market-Fund-Lineup-082720.html Pardon a bit of cynicism here, but it doesn't take two decades to come to this conclusion. Unless something unspoken has changed, like risk. Not necessarily risk to the investor, but to Vanguard. Jane Bryant Quinn wrote in 1990: https://www.chicagotribune.com/news/ct-xpm-1990-05-21-9002110461-story.html
The risk in a prime MMF is largely to the fund sponsor - eat the loss or lose face.
Why doesn't Vanguard simply merge the fund with VMFXX? Prime MMF is going to have a similar portfolio anyway. So even if you stay with the fund, you'll get the lower yield of a government MMF. The ER of VMFXX is just one basis point more than the Admiral shares of Prime. With Prime MMF Admiral shares you lose the ability to write checks; with VMFXX you can still write checks.
(my comment) even if you stay with the fund, you'll get the lower yield of a government MMF
The changes are still officially a week away, and sure enough the SEC yield of Prime has dropped to the same 0.05% yield as that of its Federal MMF. The fund already held 7/8 of its assets in government paper at the end of August.
If you can afford the $50K min, the Treasury MMF (VUSXX) now seems to be the winner in every way, if one can call a 0.06% yield "winning". It's safer since it holds all Treasuries, no repurchase agreements. In a taxable account it is state tax-free. And it is not losing its checkwriting feature (though you'd have to hold it through Vanguard's legacy mutual fund platform to be able to write checks directly against this fund).
With MMF yields this low even at Vanguard, it is hard to find reasons to use a MMF at all now.
Think of a 1 year bond that pays 2% interest at maturity (simple interest, one payment). Say the market rate is currently 2%. So you can buy the bond at par ($100) that pays $102 at maturity ($100 principal plus 2% interest).
Now the market rate drops to 1%. The price of the bond jumps to $101 (approximately). A new purchaser still gets $102 at maturity. On a $101 investment, that's a net return of 1%. In contrast, since you bought the bond last week at $100, nothing has changed for you. You still get a 2% rate of return over the year on your $100 investment.
Instead of holding the bond, suppose you sell it and pocket a quick 1% gain. You've got to put that money somewhere, so you invest in another one year bond, which is now yielding 1% (new market rate). That new bond costs you $100 and pays out $101 ($100 principal plus $1 interest) at the end of the year.
No difference, you're right back where you started. At the end of the year, you've made 2%: 1% from the immediate gain and 1% from the interest over the year.
If we think in terms of a MMF holding that one bond, the price of the fund jumps as you described (in my example to $101/share). If it continues to hold the bond, the price will gradually fall back (to $100). But at the same time it will continue to earn the higher 2% interest rate. That will more than compensate for the declining value. The net return over the year will be 1%.
Alternatively, the fund could sell its bond immediately, and purchase a new one at par with a 1% coupon. The value of the fund would remain stable rather than dropping 1%, but over the next year the investors would receive only 1% in interest. Same net return.
This is why I like to look at SEC yield. Regardless of whether the fund continued to hold the 2% bond (now priced at $101) or swapped it for a 1% bond at par, the reported SEC yield would be the same 1%.
I’ll study this. Sorta makes sense. Was wondering earlier if it made sense to shift to their prime money market fund until TRBUX returned to near $5. Even if my worst case scenario were to happen (you’ve assured me it probably won’t), potential losses still appear minor compared to most anything else we invest in - a few % points I’d guess. With a fund like this it pays to stick with a firm known for caution (like TRP). Some of the ultra-shorts got roughed up pretty bad back in ‘08.
Note: msf posted while I was writing this; but I'll keep my write in place. TRBUX started life in 2012 with a NAV of $4.50. There is no normal NAV peg with a bond fund, eh?; only that some NAV's may remain in a tighter NAV range, which would likely be the case with the shortest of duration.
During the credit lock up period of March, this fund's NAV moved to $4.80.
'Course, if one wants to ride a wide pony in bonds, there is always ZROZ (long duration zero coupon bonds). In the month of March, the ride in two weeks was from a NAV high of $188 through a NAV low of $148..........a 21% swing.
On the other hand, since inception in late 2009; the annualized 10 year return of ZROZ is 11%. Not unlike equity, one must pay attention with this etf; unless one chooses a buy and hold position to be maintained.
Take care,
Catch
Stay safe , Derf
497 1 f6993d1.htm VANGUARD CASH RESERVES FEDERAL MONEY MARKET 497
Vanguard Cash Reserves Federal Money Market Fund
Supplement Dated September 29, 2020, to the Prospectus and Summary Prospectus Dated December 20, 2019 (as supplemented September 29, 2020)
Effective immediately, Investor Shares of Vanguard Cash Reserves Federal Money Market Fund (formerly known as Vanguard Prime Money Market Fund) are closed to new investors. The Fund’s Investor Shares will remain open to existing investors. You may convert your Investor Shares of the Fund to Admiral Shares at any time by contacting Vanguard.
It is anticipated that all of the Fund’s outstanding Investor Shares will be automatically converted to Admiral Shares beginning in the fourth quarter of 2020 and continuing through 2021. Once all outstanding shares are converted, the Investor share class will be eliminated.
© 2020 The Vanguard Group, Inc. All rights reserved.
Vanguard Marketing Corporation, Distributor.PS 030H 092020