Vanguard launches short-term USD corporate bond ETF

May 29th, 2018 | By | Category: Fixed Income

Low-cost ETF provider Vanguard has launched a new fund in Europe – the Vanguard USD Corporate 1-3 Year Bond UCITS ETF (VDUC LN) – providing exposure to a broad basket of US dollar-denominated investment grade corporate bonds at the short end of the maturity spectrum.

Vanguard is expanding its ETF product range in Europe.

Vanguard is expanding its ETF product range in Europe.

VDUC has a total expense ratio (TER) of 0.15% and currently has around £20 million in assets under management. The fund trades in pounds sterling on London Stock Exchange and in Swiss francs on SIX Swiss Exchange. A further listing is currently pending on Xetra.

The ETF tracks the Bloomberg Barclays Global Agg Corporate-United States Dollar Index 1-3 Year Index. The index is composed of fixed rate bonds denominated in US dollars from issuers in both developed and emerging markets.

To be eligible for inclusion in the index, bonds must have an investment grade rating and a remaining time to maturity between one and three years. Index constituents are weighted by market value outstanding.

Vanguard’s VDUC will broadly compete with BlackRock’s iShares USD Short Duration Corporate Bond UCITS ETF (SDIG LN). Like VDUC, SDIG invests in US dollar-denominated investment grade corporate bonds, but over a slightly wider maturity range (up to five years). SDIG tracks the Markit iBoxx USD Liquid Investment Grade 0-5 Index.

SDIG has a higher TER (0.20%) than VDUC and has just over $2 billion in AUM. The fund trades in US dollars (LSE), euros (Xetra), or Swiss Francs (SIX).

The new ETF complements Vanguard’s existing fixed income product offering in Europe with the Vanguard USD Corporate Bond UCITS ETF (VUCP LN) launching in February 2016. Rather than being a short duration fund—as is the case with VDUC—VUCP offers fixed income exposure across the yield curve.

VUCP achieves this by tracking the Bloomberg Barclays Global Aggregate Corporate – United States Dollar Index, which offers broad US dollar-denominated, fixed income corporate bond exposure over a range of maturities.

VUCP has a TER of 0.12% and trades in pounds sterling (LSE), euros (Xetra), and Swiss francs (SIX). To date, the fund has accumulated around £80m in AUM.

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