Vanguard has announced the launch of two new global bond and credit ETFs giving ETF investors greater flexibility over their interest rate investment options.
The two new funds derive from existing bond funds but which will now be available as ASX-tradable ETF units. By tapping into existing fund structures, Vanguard will have established procedures and processes in place thus making it likely to avoid any usual fund start-up teething problems. For readers who are unfamiliar with bond ETFs, YieldReport has articles on what they are and how they work but in essence they are low cost, unit trusts tradeable on the ASX just like shares. They have a daily entry and exit price with transaction liquidity provided by a market maker. Both of the new ETFs are funds which invest predominantly offshore but Vanguard will use currency hedging to manage currency risk.
The underlying fund of the Vanguard International Fixed Interest ETF (ASX code: VIF) was formed in 1999 and is exceptionally well-diversified. It has over 850 different bonds from more than 30 countries. Most of the funds are invested in Europe, North America and Japan and the bonds held have been issued by governments with investment grade credit ratings. The underlying fund of the Vanguard International Credit Securities Index ETF (ASX code: VCF) was formed in 2001 and holds more than 2,900 securities issued by government owned entities, government guaranteed entities, and investment-grade corporate issuers from Europe, North America, Australia and the Asia Pacific.
Both ETFs are index funds which seek to track nominated indices which means returns before costs should closely match the indices’ performances. In the case of the International Fixed Interest ETF its benchmark is the Barclays Global Treasury Index, while the Credit Securities Index ETF’s benchmark is the Barclays Global Aggregate Government-related and Corporate Index. Costs from management fees for the International Fixed Interest ETF are towards the low end of the usual scale at 0.20% per annum but the Credit Securities Index ETF is at the other end of the scale as its management cost ratio is 0.30% per annum, perhaps reflecting the cost of dealing in a more diversified investment universe.
Readers can find the fact sheet for the International Credit Securities Index ETF here. For now the Vanguard International Fixed Interest ETF fact sheet is unavailable so here is a link to the underlying fund.