Vanguard launches total world bond ETF

Sep 10th, 2018 | By | Category: Fixed Income

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Vanguard has launched the Vanguard Total World Bond ETF (BNDW US) on Nasdaq Exchange. The fund is the industry’s first US-domiciled ETF offering passive exposure to investment grade bonds issued globally across multiple sectors.

Greg Davis Vanguard

Vanguard Chief Investment Officer Greg Davis.

It is designed to serve as a one-ticket solution covering the entire global investment grade bond space.

“With BNDW, Vanguard is the first firm to offer US investors a single index product with exposure to the entire global investment-grade bond universe,” said Vanguard Chief Investment Officer Greg Davis.

“It’s a simple, convenient, and low-cost way to obtain the diversification benefits offered by bonds of many countries and issuers.”

BNDW tracks the Bloomberg Barclays Global Aggregate Float Adjusted Composite 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.

The fund is structured as an ETF of ETFs and invests directly in the Vanguard Total Bond Market ETF (BND US) and Vanguard Total International Bond ETF (BNDX US) to obtain its target exposure.

BND covers bonds from by US issuers as well as US dollar-denominated corporate bonds from non-US issuers. BNDX invests in a portfolio of non-US dollar denominated bonds from issuers domiciled outside the US. It includes currency hedging back to the US dollar.

BNDW invests in a combination of BND and BNDX proportionally aligned with the market-capitalization weights of the global bond market.

According to Vanguard, by structuring BNDW 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 has an estimated expense ratio of 0.09% based on the costs of owning the underlying ETFs – BND comes with an expense ratio of 0.05%, while BNDX costs 0.11%.

Vanguard offers a similar product in the equities space – the Vanguard Total World Stock ETF (VT US). VT is listed on NYSE Arca, has approximately $11.8 billion in assets under management, and comes with an expense ratio of 0.10%.

By combining the ETFs together in a basic portfolio, investors may achieve a complete bond/equity strategy for a total cost of less than 10 basis points.

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