Vanguard Managed Payout fund tracking error

Tracking error is one measure of judging a fund manager’s performance.

Managed Payout Fund

The Managed Payout Fund is designed to give investors regular monthly payouts. The fund is intended to supplement  other sources of retirement income.

The Managed Payout Fund targets an annual distribution rate of 4%. To accomplish this, the fund’s portfolio managers aim to adjust the fund’s overall asset allocation over time with an emphasis on sustaining its monthly payouts, keeping pace with inflation, and preserving capital over the long term. The Managed Payout Fund consists of a portfolio with the following asset allocation, which can be shifted over time:

  • Stock market: 55%
  • Fixed income: 20%
  • Commodities: 7%
  • Alternatives: 18%

The Managed Payout fund has two policy benchmarks. The fund is not only benchmarked to a composite asset allocation benchmark, but is also benchmarked to a “payout plus inflation” benchmark. We provide data to this second benchmark on a separate tab of the chart below.  To date the fund has lagged this benchmark by approximately 1.00%.

Historical annual tracking error for the fund:

Constituent funds

Due to the fund’s allocation to investments that differ from strict stock/bond balanced funds, we will also include tables and charts from the following Vanguard funds:

  • Vanguard  Market Neutral Fund
  • Vanguard Alternative Strategies Fund
  • Vanguard Global Minimum Volatility Fund

The market neutral and alternative strategies funds are components of the fund’s investment in alternative investments.

Vanguard  Market Neutral Fund

This fund has a unique and complex investment approach, compared with other Vanguard funds. Its goal is to “neutralize,” or limit, the effect of stock market movement on returns. Because of this, the fund’s return is often uncorrelated to that of the stock market. Unlike other Vanguard funds, this fund uses long- and short-selling strategies. The fund is benchmarked to the FTSE 3-month U.S.T-Bill Index.

Historical annual tracking error for the fund:

Vanguard Alternative Strategies Fund

This fund seeks to generate returns utilizing several alternative strategies that individually and collectively are expected to have low correlation with traditional capital markets and that collectively are expected to have lower volatility than the overall U.S. stock market. The fund pursues strategies including the following: long/short equity, event driven, fixed income relative value, currencies, commodity-linked investments, and equity index futures. The fund will hold long and/or short positions within each strategy. The fund is benchmarked to a  FTSE 3-month U.S.T-Bill Index + 4.00% benchmark.

Historical annual tracking error for the fund:

Vanguard Global Minimum Volatility Fund

The fund invests primarily in U.S. and foreign stocks that are expected to minimize volatility relative to the global equity market. The fund is benchmarked to the FTSE Global All Cap Index (Hedged).

Historical annual tracking error for the fund:

 

 

 

 

 

 

About

Barry Barnitz, administrator of both the Bogleheads® wiki and of Financial Page, a Bogleheads® blog. In addition I serve as an administrator of finiki, the Canadian financial wiki, and as an administrator of the John C. Bogle Center for Financial Literacy site.

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