In a world of near-zero interest rates across many developed economies, and a 10-year Treasury yield stubbornly below 2%, investors have been ferreting out income anywhere they can find it for several years. With that hunt in overdrive, some asset managers are facing a choice between accepting every dollar that comes their way or admitting that the sharp rise in income-generating assets means incessant buying will have diminishing returns.
"Vanguard is proactively taking steps to slow strong cash flows to help ensure that the advisor's ability to produce competitive long-term results for investors is not compromised," Vanguard CEO Bill McNabb said in the announcement. "We have long been committed to protecting the interests of our funds' shareholders, and demonstrate this conviction by closing or restricting funds to stem further growth."
The Vanguard Dividend Growth Fund, run by Wellington Management, owns stocks that pay a dividend and have the capacity and growth potential to keep increasing their payout. Top holdings include names like
Part of the reason investors are so enthralled by dividend stocks is the paltry yields offered in most corners of fixed income. Though bonds have delivered strong returns for years, there are real concerns that the Federal Reserve will ultimately cut off the supply of easy money when it raises benchmark interest rates. Those fears have pushed many investors into the perceived safety of high-yielding stocks like utilities, prompting a sharp rally that has pushed prices and valuations higher and yields lower.
Investors seeking more of a middle ground have pursued strategies like that featured by the now-closed Vanguard fund: buy stocks that will participate in the stock upside, but still generate income as something of a safeguard for general market volatility.