A number of ETF issuers have launched new products lately, bringing the total number of funds closer to the 1,500 mark. While a few of these funds have been targeting brand new niches, there has also been a rising trend of ‘getting back to basics’ for issuers, as many have looked to round out lineups and plug up any weak spots.
Vanguard now appears to be getting in on the wave of launches as well, pushing out two new bond funds of its own. However, unlike many of the newly launched products from others, these two look to give investors broad bond exposure, helping to fill a hole in Vanguard’s ETF lineup.
The two funds do come in at a somewhat awkward time for the bond world though, as investors have seen some losses in their fixed income portfolios as rates have begun to climb higher. Still, as equities have begun to struggle lately, either of these bond funds described below could make for interesting picks for those seeking lower risk, broadly diversified plays in the fixed income ETF world:
Vanguard Total International Bond ETF: BNDX
This new ETF looks to give investors broad exposure to the non-U.S. dollar denominated investment-grade bond market, charging just 20 basis points in fees for its exposure. This will largely be accomplished by following the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (see Medium Term Treasury Bond ETF Investing 101).
Investors should note that this benchmark is capped, so exposure to any particular issuer is limited to a maximum of one-fifth of the total, while issuers that constitute 5% or more of the index may not constitute, in aggregate, more than 48% of the index. This product will also use a sampling process in order to establish exposure that is substantially similar to that of the underlying index, but without holding as many securities.
It is also worth pointing out that, in order to minimize currency risk, the fund will attempt to hedge its currency exposure. In terms of weighted average maturity, the product looks to stay within the five to ten year range, and at the end of the first quarter, was at 8.2 years, suggesting a modest level of interest rate risk.
ETF Competition
There are already a handful of ex-US bond funds in the ETF world, several of which have hundreds of millions, if not billions, in assets under management. In particular, the biggest competitors look to be BWX and IGOV; both of these have been around for years and see a solid level of volume and AUM (see The Guide to International Treasury Bond ETF Investing).
However, these two funds both charge a bit more in fees than their new Vanguard competitor, so Vanguard may be able to win over cost conscious investors in the ex-US bond market.