Vanguard plans to launch the Vanguard Total International Bond Index Fund and its ETF shares by the end of the second quarter of 2013.
The company filed an amended registration statement for the fund with the U.S. 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 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 U.S investors. International bonds can serve as an important diversifier, especially for U.S. investors who currently have modest exposure to the asset class,” said Vanguard CEO Bill McNabb in a statement.
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 percent to meet regulated investment company (RIC) tax diversification requirements. The top country holdings as of Dec. 31, 2012, were Japan (23 percent), France (12 percent), Germany (11 percent), and the United Kingdom (9 percent).
The fund also will be added to Vanguard’s fund 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 percent of its fixed income allocation to the Total International Bond Index Fund.
In addition, Vanguard Short-Term Inflation-Protected Securities Index Fund will replace Vanguard Inflation-Protected Securities Fund in three Target Retirement Funds that offer exposure to TIPS: the Target Retirement Income, 2010 and 2015 Funds.
The overall strategic asset allocation and glide path of the Target Retirement Funds will not change. The addition of hedged international bonds represents a refinement of the funds’ fixed income component, bringing long-term diversification benefits. An allocation to short-term TIPS provides retirees and pre-retirees with improved inflation protection with less volatility.
“We make changes to our Target Retirement Funds and other funds of funds only after careful analysis and when we’ve identified long-term benefits for investors. Adding these two new funds is expected to better dampen volatility for pre-retirees and retirees, for whom diversification on the fixed income side matters most,” said Vanguard Chief Investment Officer Tim Buckley.
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.