Vanguard today introduced seven bond index funds with ETF Shares featuring expense ratios of 0.15%. The funds, which expand Vanguard’s bond index family to 12, also offer Signal® Shares with estimated expense ratios of 0.15% and Institutional Shares with expense ratios of 0.09%.1
The funds will seek to track benchmarks focusing on discrete segments of the bond market, as follows:
|Fund (ETF Ticker)||Barclays Capital Index|
|Vanguard Short-Term Government Bond Index Fund (VGSH)||U.S. 1–3 Year Government Float Adjusted Index|
|Vanguard Intermediate-Term Government Bond Index Fund (VGIT)||U.S. 3–10 Year Government Float Adjusted Index|
|Vanguard Long-Term Government Bond Index Fund (VGLT)||U.S. Long Government Float Adjusted Index|
|Vanguard Short-Term Corporate Bond Index Fund (VCSH)||U.S. 1–5 Year Corporate Index|
|Vanguard Intermediate-Term Corporate Bond Index Fund (VCIT)||U.S. 5–10 Year Corporate Index|
|Vanguard Long-Term Corporate Bond Index Fund (VCLT)|
U.S. Long Corporate Index
|Vanguard Mortgage-Backed Securities Index Fund (VMBS)||U.S. MBS Float Adjusted Index|
“Vanguard’s expanded fixed income lineup provides greater choice and more price competition in the market, and offers financial advisors and institutions more flexibility to tailor the credit quality and duration of their bond exposure,” said Gus Sauter, Vanguard’s chief investment officer.
The new bond ETFs will be Vanguard’s first to trade on the NASDAQ stock exchange. Vanguard’s 39 other ETFs will continue to trade on the NYSE Arca exchange; some products are cross-listed in Australia and Mexico.
Vanguard is a pioneer in bond index investing, having introduced the first no-load bond index mutual fund, Vanguard Total Bond Market Index Fund, in 1986. In April 2007, the company launched four bond ETFs: Vanguard Total Bond Market ETF (BND), Vanguard Short-Term Bond ETF (BSV), Vanguard Intermediate-Term Bond ETF (BIV), and Vanguard Long-Term Bond ETF (BLV). Vanguard Extended Duration Treasury ETF (EDV) began trading in December 2007.
Vanguard is among the ETF industry leaders in net cash flow this year, with $21 billion through October 31, 2009, according to Bloomberg data. Vanguard’s ETF assets are up nearly 95% in 2009 to $78 billion. In total, Vanguard’s U.S.-based mutual funds (including ETFs) experienced net cash flows of $85 billion through October. The firm manages $1.3 trillion in U.S. fund assets, including $600 billion in index funds.
Vanguard attributes much of its continued growth to the considerable cost advantage of its products. The average expense ratio of Vanguard’s funds is 0.20%, or about one-sixth the 1.19% industry average expense ratio (Lipper Inc., 12/31/2008). The average expense ratio of Vanguard ETFs is 0.19%, less than half the ETF industry average of 0.55% (Morningstar, 10/31/2009).
Vanguard’s ETFs are structured as a separate share class of traditional index funds rather than as stand-alone funds or unit investment trusts. This novel approach leads not only to low costs but to broad diversification among securities and issuers, resulting in the potential for closer replication and tracking of benchmarks. It also enables Vanguard to optimize its creation baskets based on liquidity, a practice that lowers transaction costs and can reduce an ETF’s premiums or discounts to net asset value.
A Caveat About Bond ETFs
Unlike a conventional bond index fund, a bond ETF can trade at a substantial premium or discount to its net asset value based on overall supply and demand of bonds in the market. An investor buying ETF shares at a premium to net asset value and selling them at a discount may earn less than the return of a conventional fund that seeks to track the same target index. Currently, many bond ETFs, particularly those emphasizing lower-quality bonds, are trading at a premium.
To help individual investors understand the trade-offs between index funds and ETFs, Vanguard published an explanatory article in the Autumn 2009 edition of its shareholder newsletter, In The Vanguard. The article – “The choice between ETFs and conventional fund shares” – examines the similarities and differences between the two products. Investors may request a free copy of the newsletter by calling toll free (877-662-7447) or read it at Vanguard.com. For a more in-depth discussion, investors may download a similarly titled Vanguard research paper at the following URL: https://personal.vanguard.com/us/literature/learnaboutinvesting/investmentguides
The new bond index funds will be managed by the Vanguard Fixed Income Group, which oversees nearly $485 billion in assets, including $114 billion in bond index fund assets and $10.4 billion in bond ETF assets.
Vanguard, headquartered in Valley Forge, Pennsylvania, is one of the world’s largest investment management companies and a leading provider of company-sponsored retirement plan services. Vanguard manages $1.3 trillion in U.S. mutual fund assets, including nearly $490 billion in retirement assets. Vanguard offers more than 160 funds to U.S. investors and more than 50 additional funds in non-U.S. markets.
1 The minimum initial investment for Signal Shares for Vanguard Financial Advisor Services clients is $5 million per fund, in aggregate, at the firm level and $1 million per plan for employee benefit assets. Institutional Shares are available to companies and organizations for a minimum initial investment of $5 million. Institutional Shares are not available on accounts receiving administrative or recordkeeping services.
Asset and cash flow figures as of October 31, 2009.
For more information, visit www.vanguard.com, or call 800-662-7447 to obtain a fund prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing. Vanguard ETF Shares can be bought and sold only through a broker (who will charge a commission) and cannot be redeemed with the issuing fund. The market price of Vanguard ETF Shares may be more or less than net asset value.
Mutual funds are subject to risks. Investments in bond funds are subject to interest rate, credit, and inflation risk.
U.S. Pat. No. 6,879,964 B2; 7,337,138
Vanguard Marketing Corporation, Distributor.
John S. Woerth, 610-669-6224
Rebecca Katz, 610-503-2273
Linda S. Wolohan, 610-503-2947
Amy Chain, 610-669-2149