Vanguard Again Closes Primecap Fund to Newcomers

Vanguard Group on Tuesday closed the Vanguard Primecap Fund to new investors for the second time in three years, after the fund’s assets ballooned to $10.2 billion.

“While comfortable with the current size of the fund, we believe it’s prudent to control future growth by curtailing the cash flow into the fund,” Vanguard Chief Executive John Brennan said. “We took this step to enable the fund to maintain its distinct investment philosophy and character.”

The fund’s return to investors has averaged 26% a year over the last five years, placing it No. 13 among 297 “growth stock” funds tracked by Bloomberg Fund Performance.

An increasing number of fund managers are limiting the size of some of their best-performing funds to avoid compromising the funds’ investment style. Fidelity Investments closed four popular funds in the last eight months, including the flagship Magellan Fund. Janus Capital Corp. said Friday that it would close its Janus Overseas Fund.

The Vanguard Primecap Fund closed because its portfolio manager, Primecap Management Co. of Pasadena, was overwhelmed by the amount of cash flowing in, said Daniel Wiener, editor of the Independent Adviser for Vanguard Investors, a newsletter that tracks the second-biggest U.S. fund company.

The Vanguard Primecap Fund already had about 13% of its assets in cash, a sign the manager was having trouble finding reasonably priced stocks to buy, Wiener said. “The mangers couldn’t find enough stocks that they wanted to buy,” he said.

Some investors will buy shares of the Vanguard Horizon Capital Opportunity Fund because it’s run by the same managers and it’s a much smaller fund, with about $85 million of assets, Wiener said.

Vanguard said no new account applications or exchange requests to purchase shares would be accepted by the Vanguard Primecap Fund after the close of business Tuesday. Existing shareholders will be allowed to make further investments, the company said.

The Vanguard Primecap Fund was closed from March 1995 to October 1996, when it reopened with about $4 billion of assets.