Vanguard U.S. Growth Fund Hopes to Right the Ship With New Managers

The (VWUSX)Vanguard U.S. Growth fund missed much of tech's 1999 gains, but captured the sector's losses over the past year. That's why its new managers are starting today.

John Blundin and Christopher Toub of New York-based Alliance Capital Management (AC) took the reins of the $12 billion fund Friday, replacing lead managers David Fowler and J. Parker Hall III of Chicago-based Lincoln Capital Management, the fund's former subadviser, according to a Vanguard statement.

Parker and Hall had run the no-load fund since 1987, typically focusing on stocks of giant companies with steady earnings growth. The strategy generally worked well, as the fund beat its average peer each year from 1994 through 1998. But in 1999 the fund's competitors loaded up on the highflying shares of smaller, younger tech shops and the tamer Vanguard fund's 22.3% gain lagged 85% of its peers, according to Morningstar. Unfortunately, the managers began buying these stocks just prior to their peak in 2000, leading to a 20.7% loss last year, trailing three-quarters of their peers.

The fund is down 51.3% since the Nasdaq peaked on March last year, according to Baseline/Thomson Financial. The S&P 500 is down 11.3% over the same period. The near-term tumble has tarnished its long-term record as well. The fund's 11.3% average annual return over the past 10 years trails the S&P 500 by more than 3.5 percentage points and lags 80% of its peers.

Blundin and Toub, not listed as managers of any fund in Morningstar's database, will continue to focus on large-cap stocks "with certain risk controls," according to Vanguard's statement. Alliance, primarily known as a growth manager, has seen its own big-cap growth funds hit a rough patch lately. The (APGAX)Alliance Premier Growth fund and the (AGRFX)Alliance Growth fund, neither run by Blundin or Toub, both trail the average large-cap growth fund over the past one- and three-year periods.

Vanguard is notifying the U.S. Growth fund's some 740,000 shareholders of the management change by mail. The firm doesn't expect the fund's new management to boost its low 0.38% expense ratio. The average big-cap growth fund carries a 1.48% expense ratio, according to Morningstar.

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