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Vanguard Nears Launch of International Bond ETF

Vanguard announced today that it expects to launch the Vanguard Total International Bond Index Fund and its ETF Shares by the end of Q2 2013. 

Vanguard filed an amended registration statement for the fund with the U.S. Securities and Exchange Commission that reflects a new target index, as well as lower estimated expense ratios for various share classes of the fund and the elimination of its 0.25% planned purchase fee.

According to the filing, the institutional share class charges just 0.12%, while the ETF shares will charge an annual expense ratio of 0.20%. The Admiral and Investor shares will charge higher expenses of 0.20% and 0.23% respectively.

The fund will be linked to the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged). The index covers approximately 7,000 corporate and government bonds (average credit quality AA2/AA3) from 52 countries. The index caps its exposure to any single bond issuer, including a government, at 20% to meet regulated investment company (RIC) tax diversification requirements. The top country holdings as of December 31, 2012, were Japan (23%), France (12%), Germany (11%), and the United Kingdom (9%).

Vanguard also announced that the fund will be added as a component to Vanguard's all-in-one funds, including its series of 12 Target Retirement Funds.

"Vanguard is pleased to bring its international fixed income indexing expertise and low-cost approach to U.S investors. International bonds can serve as an important diversifier, especially for U.S. investors who currently have modest exposure to the asset class," said Vanguard CEO Bill McNabb.

Vanguard research found that a strategic allocation to hedged international bonds substantially broadens a U.S. bond portfolio, which can further moderate risk in a diversified portfolio. Vanguard believes that 20% of the bond portion of a U.S. investor's portfolio can be considered a potential target allocation to hedged international bonds.

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