New Leadership at One of Our Funds

Some fund manager changes concern us less than others. When two longtime managers of Vanguard Equity-Income (VEIPX), a member of the Kiplinger 25, the list of our favorite no-load mutual funds, retired last year, we weren't bothered.

The departing managers were part of Vanguard's quantitative equity group, which uses a computer algorithm to choose stocks. Plus, the quant group runs just one-third of the fund's assets.

But recently, Vanguard announced that Michael Reckmeyer, the Wellington Management portfolio manager who has run two-thirds of the fund's assets since 2007, would retire at the end of June. And that has us on guard.

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Reckmeyer is a masterful dividend-stock investor. Since he stepped in as a portfolio manager at Equity-Income in 2007, the fund's 9.2% annualized return has beaten the 8.8% average annual gain in its benchmark, the FTSE High Dividend Yield index. He favors high-quality firms that pay increasingly higher dividends over time. The fund currently yields 2.28%.

In October, Vanguard named Matthew Hand a co-portfolio manager of the fund. He will take over as sole manager when Reckmeyer retires.

The Leadership Shift was Given a Long Runway

This transition has been in motion for years, says Reckmeyer. Back in 2018, Hand, then a 14-year veteran member of Equity-Income's analyst team, shed some of his analytical duties so he could work more closely with Reckmeyer and learn the art of portfolio building and risk management.

Hand says he expects that much will stay the same at Equity-Income. "Mike and I both grew up at Wellington. We are extraordinarily aligned and share the same investment philosophy," he says.

Both say the fund's investing process evolves over time. When Reckmeyer became manager in 2007, for instance, he initiated a regular stress test to ensure each stock's dividend was sustainable even in a recession. Hand says he has been folding in more environmental, social and governance factors to identify any hidden risks as well as opportunities for the portfolio.

We'll be watching the fund closely this year, especially in the coming months as we reassess our entire roster of Kiplinger 25 funds for May. Stay tuned.