Vanguard launches aggregate bond ETF in Europe

Jun 20th, 2019 | By | Category: Fixed Income

Vanguard has launched a new fixed income ETF in Europe which provides broad and diversified exposure to investment grade bonds across multiple sectors and segments from both developed and emerging market issuers.

Mark Fitzgerald

Mark Fitzgerald, Head of ETF Product Management in Europe at Vanguard.

The fund, the Vanguard Global Aggregate Bond UCITS ETF, is linked to the Bloomberg Barclays Global Aggregate Float-Adjusted and Scaled Index which covers a universe of over 23,500 investment grade bonds issued by governments, corporates, and agencies.

The index currently yields 1.7% and has an effective duration of 6.9 years.

Treasury securities account for half (51.6%) of the index, followed by corporate bonds (23.1%) and government-related securities (13.1%).

In terms of credit quality, the largest allocation (42.0%) is to AAA-rated bonds, followed A-rated (23.4%), and BBB-rated bonds (17.2%).

The fund has been listed on the London Stock Exchange and Deutsche Börse and is available with USD, GBP and EUR currency-hedging, and accumulating or distributing classes.

Mark Fitzgerald, Head of ETF Product Management in Europe at Vanguard, commented, “Investors are often tempted to invest locally when it comes to fixed income, largely out of familiarity. However, the added diversity of a global bond allocation can actually reduce the risk of an investor’s fixed income portfolio without necessarily decreasing the expected returns, provided the currency risk is hedged.

“By adding global bonds, you gain exposure to a greater number of securities, different inflation, and economic environments, as well as business cycles from a wider range of markets.”

The ETF comes with an expense ratio of 0.10%, matching the fees charged on the $2.3bn iShares Core Global Aggregate Bond UCITS ETF (AGGG LN) and the $500m SPDR Bloomberg Barclays Global Aggregate Bond UCITS ETF (GLAG LN).

Fixed income ETFs are surging in popularity in Europe with over $24 billion flowing into the segement year to date.

According to Vanguard, the flows indicate that European investors are increasingly recognizing the benefits – namely low-costs, diversification, transparency, and liquidity – of using ETFs in their portfolios.

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