Morningstar has reported that Vanguard has filed "...an exemptive relief application with the SEC seeking the OK to launch an absolute return fund..."

I won't rehash Morningstar's article for you, but it's worth a read if you are a Vanguard investor -- or so-called "Bogle Head."  I have a mixed reaction to the possibility of the new fund (which would use traditional securities such as stocks and bonds, but which could also venture into futures contracts, currencies and other derivatives and non-traditional mutual fund strategies). 

My initial reaction (particularly due to Morningstar's headline mentioning "Vanguard" and "hedge fund" in the same sentence) was that Vanguard filed for the fund as pressure to introduce sexier products to its mix of passively and actively managed funds (I tend to like the ho-hum, conservative fund strategies).

Maybe they were chasing hot dollars that might migrate from the traditional relative return products to absolute return products; maybe Vanguard was attempting to broaden their investor base to more aggressive investors. 

After putting Morningstar's article aside, I decided to read Vanguard's exemptive relief application. Here comes the mixed reaction (the application didn't necessarily offer new information that Morningstar didn't report, but going straight to the source is always helpful). It appears Vanguard is brainstorming on how to build (and improve upon existing products) a more "endowment-like" strategy that may solve the income needs of retirees -- which is not only a huge market opportunity for fund companies, but a much needed product for investors.

 In other words, Vanguard is looking to add an additional strategy to their already existing Managed Payout Funds (look for more coverage on this product in a future article and blog post). This hedge fund we are mentioning would be owned across the three Managed Payout Funds (up to 20% of the Managed Payout Funds) as well as other private, high net worth investors.

Moving back to the Morningstar article, they quote Vanguard CEO Bill McNabb as saying, "We have been doing a ton of work to see whether it's something we can deliver in a consistent manner, and the jury is very much out at this point. It's not something we're going to do until we feel really great about it."

So, after spilling my initial reactions, I would sum it up as a plus that Vanguard is attempting to improve upon their line-up of products, meet investor needs and take it slow (referring to Bill McNabb's comments).

 Related Blog Post:

Be Cautious of Absolute-Return Funds

Last month, I highlighted a fund that made me go, "Huh?"  This month, I highlight a fund that makes me go, "Oh, my."

Before you read on, if you are a socially responsible investor, I will kindly direct you to About.com's Socially Responsible Investing site.

As for the rest of us, if you want to invest in your vices, or, uh umm, invest in other people's vices, there's a fund for you. As the name suggests, the Vice Fund (VICEX) invests in sin stocks.  

Directly from the summary prospectus, the Vice Fund will invest "...a significant portion of their revenues from alcoholic beverages, tobacco, gaming, and defense/aerospace. "  The majority of the fund's holdings will naturally end up in the consumer goods sector, but narrowly focused at that.

Why would any fund company create a fund such as the Vice Fund? Is it as odd, or interesting, as it may seem? Not really. It's not a novel idea.  It has been a long-held belief that sin stocks are recession proof. Why? Well, the thematic investors (investors looking to invest under a particular theme) will say that when the economy goes through a rough patch, people will turn to their vices -- creating a good investment opportunity for those who want to profit.

A combination of the sector concentration and the focus on sin stocks made me say, "Guns and gambling and beers. Oh, my."

And since the line that came to my head was taken from The Wizard of Oz, let's take another line from the movie. The Scarecrow said, "Come along Dorothy. You don't want any of those apples."

I have been told by many investors that the mutual fund prospectus is a colossal waste of trees. Others think that the prospectus is a waste of mailbox space, has a massive amount of difficult to understand information, and is, simply, something that is immediately tossed in the circular file.

Now, as of January 1, 2010, we will have relief of these unnecessarily long, complex statutory prospectuses. Mutual funds will now give investors a printed, short-form summary prospectus, written in plain English, along with the traditional full-length prospectus, available online.

So, rather than receiving three full-length prospectus for that Vanguard 500 fund that you own in three different accounts, you will have the option of receiving email notifications that the prospectus is available online.

Aite Group has estimated that these new rules may save 42,000 trees, and more that $65 million in printing and postage.  The summary prospectus will satisfy the confused readers of the traditional prospectuses, the penny pinchers, and the environmentally aware.

Read More:

The Summary Prospectus

A Prospectus: The Owner's Manual to Your Mutual Fund

In a previous blog post, I asked what you thought was the most popular blog post of 2009.  As you can see below, posts with Vanguard in the title got the top two spots.

The biggest surprise to me was the post that generated the fifth most interest on the blog.  Maybe I can creatively link the last movie I watched to mutual fund investing? Then again, it may be more difficult to find the same inspiration from Alvin and the Chipmunks: The Squeakquel.

1. Vanguard Raises the Yellow Flag

2. Vanguard's New Funds -- Not for You

3. Game On: Mutual Funds vs. ETFs

4. Looking for Yield?

5. The Curious Case of Benjamin Button