Investments  

Vanguard fund closure leaves clients with hefty CGT bill

Vanguard fund closure leaves clients with hefty CGT bill

An adviser has criticised Vanguard after it abruptly closed one of its funds, leaving his clients with a total capital gains tax bill of £30,000.

The asset manager will close the US Discoveries fund after the sub-investment manager, Granahan Investment Management, decided to end its 31-year relationship with Vanguard.

Andrew Flowers, a chartered financial planner with Buckinghamshire-based Vizion Wealth, said he used to have several clients in the fund but now only has two with “significant sums” invested.

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He said: “We are just a bit shocked that this is a forced encashment, not just for our clients but for others as well.

“They don’t seem to have the clients’ best interests at heart.”

He questioned why Vanguard couldn’t have merged the fund into another of its products.

The fund invested in small companies that tend to be unseasoned but are considered  to have superior growth potential. It will close on 22 May 2017.

Over the past three years the £110m fund has returned 15.28 per cent compared to its benchmark, the Russell Microcap Growth Index, which returned 10.36 per cent.

A spokesman for Vanguard said: “We carefully considered all the options in the case of the US Discoveries fund. There was no equivalent fund option that could accept the Discoveries fund.

“We also considered reallocating the fund’s assets to another sub-investment manager.

“However, active micro-cap managers differ greatly in stock selection approach and would likely make significant changes to the portfolio in terms of exposures and risk profile.

“This and the steps to create a working relationship with a new sub-investment manager would increase turnover and costs, negatively impacting investors in a fund of limited capacity.

“As such, we believe it is prudent to close the fund, in the best interests of investors.”

damian.fantato@ft.com