The nation's largest sector fund just ratcheted up the price for admission.
To manage steep cash flows,
raised the minimum investment for the
Vanguard Health Care fund from $10,000 to $25,000 on Monday. The move is meant to help existing shareholders, but it also puts one of the health care category's strongest funds beyond the reach of many individual investors.
Due to strong in-flows and appreciation, the no-load fund is up 52.4% since Jan. 1. The firm says it's raising the minimum to better manage cash flows. From the end of last year to the end of November the fund's assets have risen from $10 billion to $17.5 billion. Steep in-flows can hamstring a fund's management team, unfairly punishing current shareholders.
Previously, the minimum investment for IRA, or individual retirement accounts, was $1,000, but that is also now $25,000. The raised minimum doesn't apply to current shareholders, according to a Monday company statement.
The fund closed to new investors in February last year at $10 billion in assets. It then re-opened with a $10,000 minimum investment in December 1999 and a 1% redemption fee on shares sold within five years of purchase.
Given the fact that most asset allocation models advise investors to invest only 5% or 10% of their portfolios in sector funds, the raised minimum will probably force many individual investors to either shop for another fund or put an outsize portion of their assets in health care stocks. For a look at the leading health care funds, check out this recent
Daily Screen of the category. Check out the recent Big Screen for a look at
lower-risk health care funds.
Ed Owens, of subadviser
, has held the reins since the fund's 1984 inception. His price-conscious, buy-and-hold style has led to solid returns. The fund beats its average peer over the past one-, three-, five- and 10-year periods, according to
. The fund's 25.4% annualized return over the last ten years beats the S&P 500 by nearly eight percentage points and 99% of the fund's health care peers. Over the last twelve months the fund is up 53.2%, about even with its average peer.
A $10,000 investment in the fund would've grown to more than $104,300 over the last ten years, through Oct. 31, according to Morningstar. The same investment in the
Vanguard 500 Index fund, which tracks the S&P 500 Index, would've grown to $51,733.