May 24, 2012 / 7:55 PM / 7 years ago

Vanguard closes junk bond fund to new investors

(Reuters) - Vanguard Group said it was closing its $16.9 billion High-Yield Corporate Fund (VWEHX.O) to most new accounts effective immediately, marking the latest junk bond manager seeking to shut off a flood of cash from investors.

Customers added $2 billion to the fund in just the past six months, Valley Forge, Pennsylvania-based Vanguard said in a statement on Thursday.

Flows into the fund “have been particularly acute, so we are taking these proactive steps to preserve the ability of the advisor to manage the fund effectively and protect the interests of existing shareholders,” Bill McNabb, chief executive of Vanguard, said in the statement.

The fund, managed for Vanguard by Boston-based Wellington management Co, has gained an average of 14.55 percent annually over the past three years, trailing 67 percent of similar funds, according to Morningstar. But the fund’s short-term record is better. Its 5.66 percent gain over the past year exceeds 97 percent of its peers.

Vanguard’s move follows a similar one by Baltimore-based manager T. Rowe Price Group (TROW.O), which closed two of its junk bond funds to new investors as of April 30, also citing a surge of cash.

Investors weary of the minuscule yields on less risky types of bond and money market funds have been pouring money into junk bonds this year across the industry. Investors added $14.7 billion to junk funds in the first quarter, according to Morningstar.

While most new accounts will be blocked, current investors in the Vanguard fund will be permitted to add more money to their accounts. The fund was closed once before, in June 2003, after getting $1.4 billion of cash in five months. It reopened in December 2003.

Reporting by Aaron Pressman; Editing by James Dalgleish, Gary Hill

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