Investors are always looking for an edge, but a newsletter used by a group of Southwest Airlines pilots to make trades in its 401(k) accounts isn't sitting well with Vanguard.
The fund provider sent a letter to the monthly publication, 401(k) Maximizer, to complain about trades made by pilots – transactions that Vanguard said endangered the investments of about 7,000 other shareholders in the $2.6 billion plan.
The letter from Vanguard, first reported by Reuters, asked 401(k) Maximizer to cease writing about three of its funds that had been the subject of trades that totaled as much as $45 million following publication of the various editions of the newsletter. The Vanguard funds were the S&P 500 Index, Small-Cap Growth Index and the Inflation Protected Securities Index.
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The most recent edition of the newsletter advised that no changes be made to the fund's allocation, thus avoiding the issue. But Vanguard said it's ready to block future trades by the group.
Vanguard said if fund managers are not prepared for large trades, which are typically executed at the end of the trading day, the overall fund value can fall. En masse trades can force funds to sell at disadvantageous prices. In addition, because the funds must calculate their net assets each day, the withdrawal of a large amount can drive down their value. Recouping the losses can take weeks or longer.
Retirement Maximizer, which publishes the newsletter, offers three monthly publications that target the retirement funds of Southwest, Delta and American. Its CEO was a Southwest pilot.
In July, T. Rowe Price banned 1,300 American employees from making trades in their 401(k) accounts after they made mass trades based on information from EZTracker, another subscription newsletter that gives advice to airline employees.
While some critics decried the ban, saying the trades were legal, T. Rowe Price said it was protecting the assets of about 74,000 employees in the retirement funds.
Last month's warning to The 401(k) Maximizer was the third such threat that Vanguard sent to the newsletter. Vanguard sent letters to the monthly publication in 2009 and 2012.
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