Vanguard, the third-largest U.S. ETF provider by assets, is
launching a short-term inflation-protected securities index fund on
Tuesday that includes an ETF share class that would compete with
similar products from providers such as Pimco and iShares.
The Vanguard Short-Term Inflation-Protected Securities Index
Fund (NasdaqGM:VTIP) will track the Barclays U.S. Treasury
Inflation-Protected Securities (
) 0-5 Year Index, and invest in inflation-protected U.S. Treasury
securities that have a remaining maturity of less than five
That index is the same benchmark San Francisco-based iShares
uses for its $365 million iShares Barclays 0-5 Year TIPS Bond Fund
(NYSEArca:STIP), which costs 0.20 percent. Vanguard's VTIP ETF is
set to have an annual expense ratio of 0.10 percent.
Vanguard is known for its low-cost index offerings, which it
made clear with its recent decision to ditch MSCI indexes for FTSE
and CRSP indexes in 22 of its funds as a way of reducing overall
costs to investors. As a mutually structured company that is owned
by holders of its funds, Vanguard runs its products at cost, giving
it an advantage over most firms.
Indeed, VTIP fits that bill by also undercutting the price tag
of 0.20 percent for the $994 million Pimco 1-5 Year U.S. TIPS Index
But Vanguard's VTIP won't be the cheapest in the space-that
distinction still belongs to the Schwab U.S. TIPS ETF
(NYSEArca:SCHP), which costs 0.07 percent.
Interest in inflation-protected bonds has been on the rise as
investors become increasingly concerned about the prospects for
inflation given the monetary stimulus central banks such as the
Federal Reserve have injected into the global economy since the
market crash of 2008.
Many see these "easy-money" policies as a prelude to a possibly
powerful period of heighted inflationary pressures.
'The new Short-Term Inflation Protected Securities Index Fund
will provide an additional choice for investors who are seeking
protection from inflation," Vanguard Chief Investment Officer Gus
Sauter said in a press release Vanguard issued when it first filed
regulatory paperwork for VTIP in July of this year.
"The fund's objective will be to generate returns more closely
correlated with realized inflation and to offer investors the
potential for less volatility of returns relative to a
longer-duration TIPS fund," Sauter said at the time.
Vanguard's index fund has an effective duration and an average
maturity of roughly 2 1/2 years. It would join the company's $43
billion actively managed inflation-protected securities fund, which
has a duration of 8.5 years and an average maturity of 9.3
Under Vanguard's unique structure, its ETFs are a share class of
mutual funds. Aside from the ETF share class, the planned index
fund will also offer an investor shares class that will cost 0.20
percent, an admiral shares class that will cost 0.10 percent and an
institutional share class costing 0.07 percent.
The classes are divided by amount of initial investment, with
investor shares, admiral shares and institutional shares requiring
minimum investments of $3,000, $10,000 and $5 million,
"To offset the transaction costs of purchasing TIPS, the fund
will assess a 0.25 percent purchase fee on all shares, excluding
ETF shares," the company added in the release.
Vanguard had total ETF assets of $231 billion as of Friday, Oct.
12, according to data compiled by IndexUniverse. It trails iShares,
which has almost $525 billion, and State Street Global Advisors,
which has nearly $324 billion.
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