VALLEY FORGE, Pa.--()--Vanguard is expanding its family of low-cost bond offerings with plans to introduce Vanguard Emerging Markets Government Bond Index Fund and its ETF Shares by the end of the second quarter of 2013.
“Nevertheless, we do caution investors against simply investing on the basis of the higher yields offered by emerging markets bonds, as the higher yields are accompanied by higher risks, including greater volatility and higher correlation to equity markets, as well as political risk.”
Vanguard manages over $720 billion in fixed income assets, including 13 bond index funds and ETFs. In early February, Vanguard announced plans for a Total International Bond Index Fund, which along with the new fund, represent the company’s first international fixed income offerings for U.S. investors. In October 2012, the firm broadened its domestic offerings with the introduction of the Short-Term Inflation-Protected Securities Index Fund.
An amended registration statement for the new fund filed today by Vanguard with the U.S. Securities and Exchange Commission reflects a new target benchmark—the Barclays USD Emerging Markets Government RIC Capped Index. The benchmark features approximately 540 government, agency and local authority bonds from 155 issuers and, when necessary, limits weightings of individual debt issuers to meet IRS diversification requirements. The top three country holdings (as of January 31, 2013) were Russia (13.8%), Brazil (10.6%), and Mexico (8.5%). The fund will invest solely in U.S. dollar denominated emerging market bonds to protect U.S.-based investors from currency risk.
The expense ratios for the ETF, Investor, Admiral, and Institutional Shares will range from 0.30% to 0.50% (as shown in the table below). The average emerging markets bond fund features an expense ratio of 1.21% (source: Lipper, as of December 31, 2012). The fund will assess a purchase fee of 0.75% on all non-ETF Shares to help offset the higher transaction costs associated with buying emerging markets bonds.
Four Share Classes Featuring Low Expense Ratios
|Emerging Markets Government Bond Index Fund||
“Our research shows that emerging markets bonds have presented low correlations with domestic and developed market bonds, and have the potential to add value for certain risk-tolerant investors holding an otherwise broadly diversified portfolio,” said Vanguard CEO Bill McNabb. "Nevertheless, we do caution investors against simply investing on the basis of the higher yields offered by emerging markets bonds, as the higher yields are accompanied by higher risks, including greater volatility and higher correlation to equity markets, as well as political risk."
Vanguard Emerging Markets Government Bond Index Fund was designed for investors seeking low-cost exposure to a sizable and growing portion of the international fixed income universe, and who are willing to accept the generally higher risk of emerging markets bonds relative to the aggregate international fixed income market. Vanguard recommends that only investors with well-diversified, balanced investment programs consider the fund for a portion of their overall holdings. Diversification does not ensure a profit or protect against a loss in a declining market.
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 nearly $2.1 trillion in U.S. mutual fund assets, including more than $260 billion in ETF assets. The firm offers more than 170 funds to U.S. investors and more than 70 additional funds in non-U.S. markets. For more information, visit vanguard.com
All asset figures are as of January 31, 2013.
A registration statement relating to these securities has been filed with the Securities and Exchange Commission but has not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This communication shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, these securities in any state in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state.
For more information about Vanguard funds, visit vanguard.com or call 800-662-7447 to obtain a 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. Copies of the final prospectus can be obtained from Vanguard. Please note that a preliminary prospectus is subject to change.
Mutual funds and ETFs are subject to risks, including possible loss of principal. Investments in bond funds are subject to interest rate, credit, and inflation risk. Foreign investing involves additional risks including currency fluctuations and political uncertainty. Bonds of companies in emerging markets are generally more risky than bonds of companies in developed countries. Diversification does not ensure a profit or protect against a loss in a declining market.
Vanguard ETF Shares are not redeemable with the issuing Fund other than in Creation Unit aggregations. Instead, investors must buy or sell Vanguard ETF Shares in the secondary market with the assistance of a stockbroker. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.
Vanguard Marketing Corporation, Distributor.