Vanguard, the globally recognized pioneer in low-cost index funds, took another step into the world of alternative investments earlier this year, when it filed a Form N-1A with the SEC for the launch of the Vanguard Alternative Strategies Fund. That filing took effect on May 28, and on August 11, exactly 75 days later, the fund’s investor-class shares began trading under the ticker symbol “VASFX.”
The company launched its first alternative mutual fund, the Vanguard Market Neutral Fund (VMNIX), back in 1998. That fund is managed by the firm’s Quantitative Equity Group and has generated a 3.80% return over the past five years with a 3.98% annualized standard deviation.
Objective & Approach
The fund’s investment objective is to generate returns that have low correlation to the stock and bond markets, and also have less volatility than the overall U.S. stock market. These goals are pursued by means of a multi-strategy approach, which include the following:
- Long/short equity
- Event driven
- Fixed-income relative value
- Commodity-linked investments
The fund may hold long or short positions within each strategy, and may also use options, forward contracts, futures, and swaps in pursuit of its investment objectives.
The fund’s long/short equity and event-driven investments may include U.S. and non-U.S. equities, while its fixed-income relative value strategy involves mostly U.S. Treasuries. The fund’s currency strategy involves selling currencies of countries with poor fundamentals and buying the currencies of countries with strong fundamentals. Its commodities strategy seeks exposure through ETFs, commodity-linked swaps, and futures contracts on agricultural products, livestock, precious and industrial metals, and energy products. This combination of equity, fixed-income, currency, and commodity investments is intended to provide real diversification benefits, thereby dampening portfolio volatility.
Management & Share Information
While most multi-strategy funds feature a variety of sub-advisors, each specializing in one or two specific strategies, the Vanguard Alternative Strategies Fund is a single-manager fund* headed by Michael Roach, CFA. Based upon Mr. Roach’s LinkedIn provile, he is a portfolio manager in Vanguard’s Quantitative Equity Group and a specialist in portfolio construction and optimization techniques. He also serves as a portfolio manager to 14 other vanguard mutual funds, including the Market Neutral Fund.
The Vanguard Alternative Strategies Fund’s investor-class shares are available with a minimum initial investment of $250,000. The management fee on the fund is 0.18% (yes, 0.18% – that’s not a typo) and the net-expense ratio is 1.10%.
For more information, read a copy of the fund’s prospectus.
* The fund does have the ability to appoint external managers as sub-advisors.