Vanguard is expanding its family of bond offerings with plans to
introduce a Vanguard Emerging Markets Government Bond Index Fund
and its ETF Shares by the end of the second quarter of 2013.
"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."
An amended registration statement for the new fund filed by
Vanguard with the U.S. Securities and Exchange Commission (SEC)
reflects a new target benchmark-the Barclays USD Emerging Markets
Government RIC Capped Index.
The index 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 proposed Vanguard Emerging Markets Bond ETF will charge
annual expenses of 0.35%. The fund will compete with existing ETFs
in the emerging markets bond market iShares Emerging Markets USD
Bond ETF (NYSEARCA:EMB) and the PowerShares Emerging Markets
Sovereign Debt Portfolio (NYSEARCA:PCY). EMB charges annual
expenses of 0.59% and holds a portfolio of 159 different
securities. PCY charges 0.50% annually and carries an SEC 30-day
yield of 4.25%.
Declining Expense Ratios
The expense ratios of most share classes of nine Vanguard
international index funds have fell from reported 2011 fiscal year
figures. The table below shows the expense ratio declines for the
respective share classes of the funds. The reductions are a
function of asset growth, operating cost reductions, or a
combination of both. The related savings are delivered to fund
owners in the form of lower expenses.
In early February,Vanguard also announced plans for a Total
International Bond Index Fund.
Vanguard manages over $800 billion in fixed income assets,
including 13 bond index funds and ETFs.
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