It's actually a very simple explanation - here it is: 'Other...

It's actually a very simple explanation - here it is:

'Other People's Money'

Vanguard, as with other fund managers, invests money for other institutions and individuals. What this means is that at any given point in time funds flow in but will also flow outwards as investors make redemptions for their own reasons.

Now Vanguard, as with many reputable fund managers, has scale with its transactions. Immense scale.

I mentioned in a previous post that Vanguard is an Index Manager and will therefore hold BJT in some proportion as long as BJT is in the ASX 200 which it still is.

Vanguard’s last notice to the market dated 24/04/2009 showed a sale amount of a mere 81,370 shares which obviously took their holding below 5% and hence the notice.

They have since 24/04/2009 accumulated at least a further 757,000 shares (approximately) which has taken them back over 5% (5.149% to be precise).

Why? They are a fund manager remember? Some of their managed fund offerings are Pension Funds and Superannuation Funds. Income payments for pension fund structures as well as rollovers and/or other redemptions from superannuation tax structures would necessitate selling of units in Vanguard funds.

Sometimes (actually often) this results in the fund manager (Vanguard) actually having to sell down their investments to meet the redemptions if the requested redemption volumes are sufficient.

Any given managed fund, even those that purport to invest exclusively in one type of asset will always retain up to 3% of the funds assets in cash to meet such demand, however sometimes this is not always enough.

One such fund by way of example is MLC IncomeBuilder. This fund is run exclusively by Vanguard and Maple-Brown Abbott. Investors entering and exiting funds such as this one for instance, in sufficient quantities can trigger purchases and sales of fund manager positions, sometimes in quite a large scale.