New Vanguard Global BondA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. Fund Opening
With a single stroke, Vanguard has doubled its global bondA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. fund offerings from one to two.
The actively managed Vanguard Global Credit Bond fund should open to investors in the coming days. It will go head-to-head with the index-based Vanguard Total World Bond ETF, which began trading just over two months ago in September.
The new fund will be available in the firm’s Admiral (ticker: VGCAX) and Investor (VGCIX) share classes, which charge 0.25% and 0.35% in expenses, respectively. The in-house ETFA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index. competition charges just 0.09%, giving Total World Bond ETF an early edge, but the fees on Vanguard Global Credit Bond’s two share classes compare very favorably to those of the global bond fund universe as a whole. According to Morningstar, the average world bond fund charges 0.96% a year, putting Vanguard’s new offering leaps and bounds ahead on the fee front.
Managers Samuel Martinez and Daniel Shaykevich will be investing Global Credit Bond’s portfolio in both corporate and non-corporate bondsA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. (but not government-guaranteed ones) worldwide. Foreign currencies will be hedged back into the dollar (a means of reducing the riskThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline. of exchange-rate fluctuations on the portfolio) and the managers also have the ability to put up to 10% of assets into high-yield or “junk” bonds (those rated below “investment-grade”). Vanguard has said that a majority of the portfolio will be invested in the U.S., although we won’t know the exact mix of domestic and international bonds until it begins reporting holdings. As a yardstick, Total World Bond ETF is split 60%/40% between U.S. and foreign bonds.
Martinez and Shaykevich are the same duo that was added to Vanguard’s three actively managed U.S.-focused investment-grade bond funds earlier this year.
The horse race between active and index funds with similar objectives is nothing new within the Vanguard stable, and Vanguard Global Credit Bond and Total World Bond ETF are just the latest entrants. We are not convinced that international bonds diversify a portfolio as effectively as international stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company., but we will be watching with interest to see how these new funds perform relative to one another and the broad bond market.
Vanguard Names Tim Buckley New Chairman
Last week, Vanguard announced that President and CEO Mortimer “Tim” Buckley will assume the chairman position at the beginning of 2019, succeeding Bill McNabb, who is leaving the firm. Buckley will become the fourth chairman in Vanguard’s 43-year history.
“Tim has been a strong, focused leader at Vanguard during times of tremendous company growth, as well as periods of significant market uncertainty,” McNabb said in a press release.
Buckley took over for McNabb as president and CEO on January 1, 2018. Prior to those roles, Buckley had served as chief investment officer at the Malvern, Pa.-based fund colossus since 2013. He has been a member of Vanguard’s senior leadership team since 2001 and joined the firm in 1991 as an assistant to firm founder and then-Chairman Jack Bogle.
McNabb has been with Vanguard since 1986. He rose through the ranks to become CEO in 2008 and was appointed chairman the following year.
This marks a new chapter in Vanguard’s history, but we don’t expect investors to notice many, if any, changes after Buckley assumes the chairmanship on January 1.
New Podcast: What’s Your Number?
We are pleased to announce that the latest episode of The Adviser You Can Talk To podcast is now live and available for on-demand listening.
In this most recent addition to the series, Chairman Dan Wiener and Director of Research Jeff DeMaso discuss a topic that was likely on investors’ minds following the stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. market’s volatilityA measure of how large the changes in an asset’s price are. The more volatile an asset, the more likely that its price will experience sharp rises and steep drops over time. The more volatile an asset is, the riskier it is to invest in. and various pullbacks over the last month-plus—at what point do we become uncomfortable with our portfolio’s risk and what should we do about it?
You can download and play back any of the prior episodes by visiting www.AdviserInvestments.com or other popular podcast platforms, including Apple, Google Play, Spotify and iHeartRadio, among others.
We’d love to hear your feedback on this episode and suggestions on topics to cover in the future. Please send your thoughts to email@example.com—you never know, your idea could be our next podcast!
This material is distributed for informational purposes only. The investment ideas and expressions of opinion may contain certain forward-looking statements and should not be viewed as recommendations, personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.
Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.
Past performance is not an indication of future returns. The tax information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. We do not provide legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.
The Barron’s rankings consider factors such as assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. This award does not consider client experience and is not indicative of future performance.
Editors at the Financial Times bestowed “elite” status on 300 firms in the U.S., as determined by assets under management, asset growth, longevity, compliance record, industry certifications and online accessibility.
© 2018 Adviser Investments, LLC. All Rights Reserved.