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Vanguard to Offer New Bond Index Funds |
September 18, 2009 By Dan Wiener, Editor, Independent Adviser for Vanguard Investors |
Dan Wiener
Daniel P. Wiener is America's leading expert on investing in Vanguard mutual funds and is editor of The Independent Adviser for Vanguard Investors, a monthly newsletter that keeps abreast of recent developments at Vanguard. The Adviser is a five-time winner of the Newsletter Publishers Foundation's Editorial Excellence Award.
Also From Dan Wiener
Free Reports by Dan Wiener
Vanguard to Introduce Seven New
Bond Index Funds on Nov. 2
Vanguard recently announced it will make an enormous new foray into bond indexing with what appears to be the goal of wresting control of the exchange-traded bond fund market from Barclays' iShares group and going head-to-head with planned offerings from PIMCO as well as new entries that might come from the iShares acquirer BlackRock Inc.
The seven new bond index funds that Vanguard expects to introduce on Monday, November 2 track seven Barclays Capital bond indexes and will be available in institutional fund shares, Signal shares and ETF shares.
The corporate bond funds will all have front-end loads ranging from 0.25% to 1.00%, making them pretty unattractive. I would say the bulk of assets that investors send to these funds will be going into the ETFs.
A Closer Look at Vanguard's New
Bond Index Funds
As a whole, the seven bond sector funds will cover approximately 92% of the entire Barclays Aggregate Bond Index now tracked by Total Bond Market (VBMFX).
Only asset-backed bonds, foreign government bonds, taxable state and municipal bonds and commercial mortgage-backed bonds are missing from this lineup's holdings.
|
Weighted-Avg.
Maturity |
Sales Fee/Load
|
Securities in Index
|
|
| Short-Term Gov. Index |
1.9 years
|
none
|
447
|
| Int.-Term Gov. Index |
5.9 years
|
none
|
413
|
| Long-Term Gov. Index |
19.0 years
|
none
|
130
|
| Short-Term Corp. Index |
3.1 years
|
0.25% front-end
|
1,215
|
| Int.-Term Corp. Index |
7.9 years
|
0.50% front-end
|
1,154
|
| Long-Term Corp. Index |
24.7 years
|
1.00% front-end
|
886
|
| Mortgage-Backed Index |
5.8 years
|
none
|
1,609
|
The Government bond index funds will invest in Treasury bonds (excluding inflation-protected bonds) as well as bonds issued by or guaranteed by the U.S. government or agencies as well as foreign, dollar-denominated debt guaranteed by the U.S. government.
The corporate bond index funds will invest in investment-grade taxable bonds.
The mortgage-backed securities fund will invest in GNMA, Fannie Mae and Freddie Mac issued mortgage pass-through securities.
All of the funds' portfolios will be sampled, rather than replicated by investing in all of the securities that make up the relevant indexes.
Now let's take a closer look at how Vanguard's new index funds stack up against their existing index funds.
