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Vanguard to launch low-cost International Bond Index Fund and ETF


Vanguard expects to launch the Vanguard Total International Bond Index Fund and its ETF shares by the end of the second quarter.

Vanguard has filed an amended registration statement for the fund with the US Securities and Exchange Commission that reflects a new target index, as well as lower estimated expense ratios for various share classes of the fund and the elimination of its planned purchase fee.

The company also announced that the fund will be added as a component to Vanguard’s all-in-one funds, including its popular series of 12 Target Retirement Funds.

“Vanguard is pleased to bring its international fixed income indexing expertise and low-cost approach to US investors. International bonds can serve as an important diversifier, especially for US investors who currently have modest exposure to the asset class,” says Vanguard chief executive Bill McNabb (pictured).

Vanguard research found that a strategic allocation to hedged international bonds substantially broadens a US bond portfolio, which can further moderate risk in a diversified portfolio. Vanguard believes that 20 per cent of the bond portion of a US investor’s portfolio can be considered a potential target allocation to hedged international bonds.

The Total International Bond Index Fund will seek to track the performance of a new benchmark— the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged). The index comprises approximately 7,000 high-quality corporate and government bonds (average credit quality AA2/AA3) from 52 countries. The index caps its exposure to any single bond issuer, including a government, at 20 per cent to meet regulated investment company (RIC) tax diversification requirements. The top country holdings as of 31 December 2012 were Japan (23 per cent), France (12 per cent), Germany (11 per cent), and the UK (nine per cent).

Vanguard is estimating lower expense figures in the amended filing for the Total International Bond Index Fund. The fund will offer conventional shares (Investor, Admiral, and Institutional) with projected expense ratios ranging from 0.12 per cent to 0.23 per cent. The ETF shares have a projected expense ratio of 0.20 per cent. Vanguard has also eliminated a planned 0.25 per cent purchase fee on the fund.

The Total International Bond Index Fund will be added to Vanguard’s funds of funds, including the Vanguard Target Retirement Funds, Vanguard LifeStrategy Funds, two of three Vanguard Managed Payout Funds, and two insurance portfolios. Each fund of funds will apportion 20 per cent of its fixed income allocation to the Total International Bond Index Fund.

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