Vanguard introduces euro-hedged share classes for trio of fixed income ETFs

Sep 9th, 2020 | By | Category: Fixed Income

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Vanguard has introduced euro-hedged share classes for three fixed income ETFs that deliver core access to Treasury, gilt, and USD corporate bond markets.

Vanguard launches euro-hedged versions of core fixed income ETFs

Vanguard has launched three currency-hedged ETF share classes on Deutsche Börse Xetra.

The funds track broad-maturity indices from Bloomberg Barclays via physical replication using a sample-based approach.

Income is accumulated within the portfolios.

The new share classes have been listed on Deutsche Börse’s Xetra platform and provide investors with tools to mitigate the foreign-exchange exposure of underlying dollar- or sterling-denominated securities relative to the euro.

A growing number of investors have sought to incorporate currency hedging strategies into their portfolios this year owing to heightened levels of volatility between major currency pairs – a function of the uncertain economic backdrop caused by the Covid-19 pandemic.

The rolling one-year volatility between the euro and the dollar is up from 4.4% at the start of the year to 7.3% (as of 8 September), while the rolling one-year volatility between the euro and pound sterling has climbed from 7.9% to 9.7% over the same period.

The funds

The Vanguard USD Treasury Bond UCITS ETF EUR Hedged – Acc (VDTE GY) tracks the Bloomberg Barclays Global Aggregate US Treasury Float Adjusted Index.

The index consists of fixed-rate, US dollar-denominated securities issued by the US government. Eligible bonds must have a maturity greater than one year and a minimum issue size of $300 million. The yield on the index is 0.4%, while its average duration is 7.1 years. The new share class comes with an expense ratio of 0.12%, while the non-hedged share class costs 0.07%. The fund houses €526m.

The Vanguard UK Gilt UCITS ETF EUR Hedged – Acc (VGUE GY) tracks the Bloomberg Barclays Sterling Gilt Float Adjusted Index.

The index consists of fixed-rate, sterling-denominated securities issued by the UK government. Eligible bonds must have a maturity greater than one year and a minimum issue size of £200m. The yield on the index is 0.3%, while its average duration is 14.4 years. The new share class also comes with an expense ratio of 0.12%, while the unhedged share class costs 0.07. The fund houses €225m.

The Vanguard USD Corporate Bond UCITS ETF EUR hedged – Acc (VDCE GY) tracks the Bloomberg Barclays Global Aggregate Corporate USD Index.

The index consists of fixed-rate, US dollar-denominated securities issued by corporate entities globally. Eligible bonds must have a maturity greater than one year and a minimum issue size of $250m. The yield on the index is 1.9%, while its average duration is 8.2 years. The new share class comes with an expense ratio of 0.14%, while the unhedged class costs 0.09%. The fund houses $524m.

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