International bond index fund and ETF now available
June 04, 2013
If you're looking to add international bonds to the fixed income portion of your portfolio, consider Vanguard Total International Bond Index Fund, now available to investors.
This new offering joins Vanguard Emerging Markets Government Bond Index Fund, introduced on May 14, 2013. Together, the two funds offer investors global diversification and low-cost exposure to one of the world's largest asset classes. (For an in-depth look at investing in international bonds, read our 2012 research paper Global fixed income: Considerations for U.S. investors.)
Vanguard's other international bond fund—Emerging Markets Government Bond Index Fund—has now completed its initial subscription period.
Vanguard Total International Bond Index Fund offers broad exposure to the international fixed income market and complements our other total-market offerings: the $248 billion Vanguard Total Stock Market Index Fund, the $117 billion Vanguard Total Bond Market Index Fund, the $95 billion Vanguard Total International Stock Index Fund, and the $3 billion Vanguard Total World Stock Index Fund.
"Our broad market index funds enable individual investors, financial advisors, and institutions to build broadly diversified, balanced investment portfolios at an extremely low cost," said Vanguard Chairman and CEO Bill McNabb. "We’ve seen a growing number of investors adopt low-cost, diversified investment programs through our all-in-one funds or assemble their own balanced portfolios using our broad-based funds and ETFs."
A look at the new fund
Vanguard Total International Bond Index Fund seeks to track the performance of the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged). As with its index, the fund's exposure to any single bond issuer, including government issuers, is capped at 20% to meet regulated investment company (RIC) tax diversification requirements. Approximately 7,000 high-quality corporate and government bonds from 52 countries are included in the index.
The benchmark's top country holdings as of April 30, 2013, were Japan (22%), France (11%), Germany (11%), Italy (8%), and the United Kingdom (8%).
The expense ratios for the fund's Investor, Admiral™, Institutional, and ETF share classes will range from 0.12% to 0.23%. Here's a look at the fund's anticipated expense ratios for each share class:
The Vanguard Total International Bond ETF will trade on the NASDAQ under the ticker BNDX.
As with most Vanguard funds, Vanguard Total International Bond Index Fund has no purchase or redemption fees.
Vanguard Fixed Income Group, one of the world's largest fixed income managers, manages the fund. The group oversees more than $650 billion in domestic and international fixed income and money market assets, and has managed international bond funds for non-U.S. investors for more than a decade.
Josh Barrickman, CFA, and Yan Pu, CFA, jointly manage the new fund. Mr. Barrickman, head of Vanguard Bond Index Group, has more than 14 years of experience in the investment field. Ms. Pu joined Vanguard in 2004 and has more than 10 years of investment management experience.
Enhancements made to all-in-one funds
Because of the diversification benefits international bonds offer, we've added Vanguard Total International Bond Index Fund to our 12 Vanguard Target Retirement Funds, 4 Vanguard LifeStrategy® Funds, and 2 Vanguard Variable Insurance Funds. The new international bond fund represents 20% of the fixed income allocation for each of the funds listed.
Additionally, to provide retirees and pre-retirees with improved inflation protection with less volatility, we have replaced Vanguard Inflation-Protected Securities Fund with Vanguard Short-Term Inflation-Protected Securities Index Fund in Vanguard Target Retirement Income Fund, Vanguard Target Retirement 2010 Fund, and Vanguard Target Retirement 2015 Fund.
- All investing is subject to risks, including the possible loss of the money you invest. Foreign investing involves additional risks including currency fluctuations and political uncertainty.
- Bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer’s ability to make such payments will cause the price of that bond to decline. Bonds of companies in emerging markets are generally more risky than bonds of companies in developed countries.
- Total International Bond Index Fund is subject to currency risk, which is the chance that currency hedging transactions may not perfectly offset the Fund's foreign currency exposures and may eliminate any chance for a fund to benefit from favorable fluctuations in those currencies. The Fund will incur expenses to hedge its currency exposures.
- The Emerging Markets Government Bond Fund is subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer’s ability to make payments. The Fund seeks to track the performance of an index that measures the investment return of dollar-denominated bonds issued by governments of emerging market countries (including government agencies and government-owned corporations). It is subject to risks including country/regional risk, which is the chance that political upheaval, financial troubles, or natural disasters will adversely affect the value of securities issued by foreign governments, and emerging market risk, which is the chance that bonds of governments located in emerging markets will be substantially more volatile and substantially less liquid that the bonds of governments located in more developed foreign markets.
- Diversification does not ensure a profit or protect against a loss in a declining market.