Vanguard launches global bond ETF in Canada

Jan 28th, 2020 | By | Category: Fixed Income

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Vanguard has launched a new fixed income ETF on Toronto Stock Exchange, providing low-cost exposure to a globally diversified portfolio of bonds issued across multiple sectors.

Vanguard Canada 1

Vanguard celebrated the fund’s launch at a market opening ceremony at the Toronto Stock Exchange.

The Vanguard Global Aggregate Bond Index (CAD-hedged) ETF (VGAB CN) is designed to serve as a one-ticket solution covering the entire global investment-grade bond space.

The fund gains its exposure by tracking the Bloomberg Barclays Global Aggregate Float Adjusted Composite (CAD-hedged) Index.

The index represents a wide spectrum of investment-grade, taxable, fixed income securities including government, corporate, mortgage-backed, and asset-backed securities.

Bonds with a maturity of more than one year are eligible for inclusion, and the index hedges foreign currency exposure relative to the Canadian dollar.

The fund is structured as an ETF-of-ETFs and invests directly in two existing Vanguard aggregate bond ETFs to obtain its targeted exposure: the Vanguard US Aggregate Bond Index (CAD-hedged) ETF (VBU CN) and the Vanguard Global ex-US Aggregate Bond Index (CAD-hedged) ETF (VBG CN).

VBU covers bonds from US issuers as well as US dollar-denominated corporate bonds from non-US issuers. VBG invests in a portfolio of non-US-dollar-denominated bonds from issuers domiciled outside the US.

VGAB invests in a combination of VBU and VBG proportionally aligned with the market-capitalization weights of the global bond market.

According to Vanguard, by structuring VGAB as an ETF-of-ETFs, the fund is able to achieve immediate scale and is expected to result in tighter bid/ask spreads and lower operating expenses than investing directly in the index’s underlying constituents.

The fund comes with a management fee of 0.30% which includes the cost of investing in the two underlying Vanguard aggregate bond ETFs.

Kathy Bock, Managing Director and Head of Vanguard Investments Canada, commented, “Canadian investors and advisors are increasingly going global for simple, low-cost, and well-diversified fixed income solutions. We are pleased to serve those needs with a single ticket fixed income ETF that is broadly diversified and is unique in its category.”

Scott Johnston, Head of Product, Vanguard Investments Canada, added, “Two of the largest trends in the Canadian ETF space are high-quality fixed income portfolios and single ticket solutions. This ETF offers sound portfolio construction, ease of use, and a low cost to advisors and investors. Canadians can access a broad global universe of fixed income securities in one fund with diversification across different countries, issuers, and term structures, overseen by Vanguard’s disciplined global fixed income investment teams.

“In today’s low-yield environment, cost matters more than ever. This is particularly true of bonds, where below-average yields mean that cost is making up an increasingly larger share of investor returns. A well-diversified and low-cost global fixed income solution can help limit home bias and give investors the best chance for investment success.”

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