Vanguard, the fund provider behind the market’s biggest emerging markets ETF—VWO—said it plans to launch an international aggregate bond fund by the end of the second quarter, and with a cheaper fee than originally expected.
In an amendment to a filing the company first submitted to regulators in 2011, Vanguard said its planned Vanguard Total International Bond Index Fund would be linked to the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (hedged). The fund will tap into a universe of 7,000 high-quality corporate and government bonds from 52 countries.
What’s more, the latest ETF—which, like all Vanguard ETFs, will be a share class of a broader mutual fund—will have a 0.20 percent expense ratio, less than the 0.30 percent the company originally projected. Vanguard also said it has eliminated a planned 0.25 percent purchase fee on the fund.
International bond funds are growing in popularity with investors, who increasingly look to the segment for income-generating diversification that is also known to help mitigate overall portfolio volatility.
“International bonds can serve as an important diversifier, especially for U.S. investors who currently have modest exposure to the asset class,” Vanguard CEO Bill McNabb said in a press release, noting that a strategic allocation to hedged international bonds can help moderate risk in a portfolio.
The index underlying the strategy caps single-issuer exposure at 20 percent in order to meet regulated investment company (RIC) tax diversification requirements, the company said in a release.
By hedging currency exposure, Vanguard said the fund’s returns should more closely correlate with the underlying performance of international bonds without currency distortions.
Japan, France, Germany and the United Kingdom represented the biggest country allocations as of Dec. 31, 2012.
The investment-grade international bond portfolio will be available in a mutual fund wrapper in the “Investor,” “Admiral” and “Institutional” share classes for 0.23 percent, 0.20 percent and 0.12 percent, respectively. That would make the “Institutional” share class the only category cheaper than the ETF.
All of these planned fees have been lowered from earlier projections of 0.40 percent, 0.30 percent and 0.25 percent, respectively.
The new strategy will also be added to Vanguard’s fund of funds, including target retirement funds, LifeStrategy funds and managed payout funds, the company said.
Smart beta isn’t smarter than cap weighting, but it is different, and that’s great for investors.
Trial by fire is one way to discover why ETF transparency matters.
Most people now realize leveraged ETFs can hurt you, but how, then, to use them?
What would a shift out of a mutual fund and into an ETF look like up close?