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Vanguard to offer Short-Term TIPS Index Fund


Vanguard has filed a registration statement with the US Securities and Exchange Commission for Vanguard Short-Term Inflation-Protected Securities Index Fund.

The new fund will seek to track the performance of the Barclays US Treasury Inflation-Protected Securities (TIPS) 0-5 Year Index, a market-weighted index that measures the performance of inflation-protected public obligations of the US Treasury that have a remaining maturity of less than five years.

The benchmark index has an effective duration of 2.53 years and an average maturity of 2.59 years (as of 30 June 2012).

Barclays is the index provider for all of Vanguard’s fixed income index funds.

Expected to be available in the fourth quarter of 2012, the fund will offer four low-cost share classes (Investor Shares, Admiral Shares, Institutional Shares, and ETF Shares).

The short-term fund will complement the existing USD43bn Vanguard Inflation-Protected Securities Fund, an actively managed fund with a duration of 8.5 years and an average maturity of 9.3 years.

"The new Short-Term Inflation Protected Securities Index Fund will provide an additional choice for investors who are seeking protection from inflation,” says Vanguard chief investment officer Gus Sauter. “The fund’s objective will be to generate returns more closely correlated with realised inflation and to offer investors the potential for less volatility of returns relative to a longer-duration TIPS fund.”

The new fund’s ETF Shares have an estimated expense ratio of 0.10 per cent. The fund’s Investor Shares, which require a USD3,000 minimum initial investment, have an estimated expense ratio of 0.20 per cent; the Admiral Shares, which require a USD10,000 minimum initial investment, have an estimated expense ratio of 0.10 per cent; and the Institutional Shares, which require a USD5m minimum initial investment, have an estimated expense ratio of 0.07 per cent. To offset the transaction costs of purchasing TIPS, the fund will assess a 0.25 per cent purchase fee on all shares (excluding ETF shares).

Joshua Barrickman and Gemma Wright-Casparius, both principals and senior portfolio managers in the Vanguard Fixed Income Group—with 40 years of fixed income experience between them—will co-manage the new fund.

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