Vanguard Plans Funds to Trade Like Stock
In a significant concession to the growing number of investors buying and selling at lightning speed, asset-management giant Vanguard Group said it will add new mutual-fund products that trade throughout the day like a stock.</br></br>The decision to seek Securities and Exchange Commission approval for the new investment vehicles comes after months of hand wringing at the nation's second-largest mutual-fund firm. During the past year or so, low-cost exchange-traded funds, or ETFs, have surged in popularity on the American Stock Exchange, threatening to steal business from Vanguard's franchise index funds. ETFs are a hybrid version of index mutual funds that can be bought or sold during the day at market prices instead of at the once-daily 4 p.m. price used by traditional mutual funds.</br></br>The new Vanguard ETFs will compete with upstart ETFs offered by State Street Corp.'s State Street Global Advisors and Barclays PLC's Barclays Global Investors, among others. Vanguard, based in Malvern, Pa., studied the easily traded products for years, and began seriously considering them as an add-on to their traditional index mutual funds about a year ago.</br></br>Industry observers said Vanguard's entry could prompt other fund companies to add ETFs to their traditional index funds. "It's really a case of Vanguard's premier brand name putting the Good Housekeeping seal of approval on exchange-traded funds," said Burt Greenwald, a mutual-fund consultant in Philadelphia.</br></br>The new products, to be called Viper shares and listed on the American exchange, will be added as a new share class to five of the company's most prominent index funds: the $105 billion-in-assets Vanguard 500 Index Fund, the $19 billion Vanguard Total Stock Market Fund, the $16 billion Vanguard Growth Index Fund, the $4 billion Vanguard Small-Cap Index Fund and the $3 billion Vanguard Value Index Fund. Pending regulatory approval by the SEC, the new share class will be introduced during the third quarter, a Vanguard spokesman said.