Vanguard launches US corporate bond ETF of ETFs

Nov 14th, 2017 | By | Category: Fixed Income

Vanguard has launched the Vanguard Total Corporate Bond ETF (VTC US) on Nasdaq. The fund offers investors exposure to the broad US investment grade corporate bond market through a single fund.

Vanguard ETF Total Corporate Bond

Members from Vanguard were invited to ring Nasdaq’s market opening bell on 14 November 2017 to mark the launch of VTC.

John Hollyer, global head of Vanguard Fixed Income Group, commented: “The Total Corporate Bond ETF provides investors with a core portfolio building block and is a welcome addition to Vanguard’s diversified line up of low-cost bond ETFs.”

The fund is an ETF of ETFs, and tracks the Bloomberg Barclays US Corporate Bond Index by investing directly in three existing Vanguard corporate bond ETFs: the Vanguard Short-Term Corporate Bond ETF (VCSH US), the Vanguard Intermediate-Term Corporate Bond ETF (VCIT US) and the Vanguard Long-Term Corporate Bond ETF (VCLT US).

This structure allows investors to access more than 5,500 US corporate bonds by taking advantage of the existing exposure and scale offered by the underlying ETFs. This approach achieves near complete replication of the benchmark as well as tighter bid/ask spreads and lower operating expenses that investing directly in the benchmark’s constituents. The fund has an annual charge of 0.07%, matching the fees charged by each of the three ETFs it will invest in.

Rich Powers, Vanguard head of ETF product management, commented: “As mutual fund and ETF costs continue to compress, the relative benefit to choosing the cheapest fund diminishes. When choosing among similarly priced funds, we suggest investors consider elements beyond the expense ratio, such as investment strategy, methodology, tracking difference, spreads, tax efficiency and brand.”

The fund will compete with the $39bn iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE Arca: LQD) which provides exposure to the broad range of US investment grade corporate bonds through tracking the Markit iBoxx USD Liquid Investment Grade Index. LQD costs 0.15%.

iShares offers a Europe-listed ETF which tracks the same Markit iBoxx index. The iShares $ Corp Bond UCITS ETF (LON: LQDE) has $6.3bn in AUM and a TER of 0.20%.

Vanguard now offers 17 fixed income ETFs which have seen a combined $30 billion in net new assets in the year to 30 September.

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