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 move by Primecap, managed for Vanguard by publicity-shy Primecap Management Co. of Pasadena, is just the latest closing by a highly regarded fund. Fidelity Investments closed four popular funds in the last eight months, including the flagship Magellan Fund.

Janus Capital Corp. said last Friday that it would close its $4-billion-asset Janus Overseas Fund, one of the most popular international stock funds.

While closings are still a rarity in the fund business, the trend may accelerate as stocks continue to soar, leaving many fund managers uncomfortable with the prices they have to pay, analysts say.

Vanguard Primecap 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.

Vanguard Primecap already had about 13% of its assets in cash, a sign the manager was having trouble finding reasonably priced stocks to buy, said Dan Wiener, editor of the Independent Adviser for Vanguard Investors, a newsletter that tracks Vanguard funds.

“The managers couldn’t find enough stocks that they wanted to buy,” he said.

Some investors may opt to buy shares of the Vanguard Horizon Capital Opportunity Fund because it’s run by the same managers and yet is 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.