Vanguard unveils plans for emerging markets government bond ETF

Mar 4th, 2013 | By | Category: Fixed Income

Vanguard has unveiled plans to expand its family of fixed income exchange-traded funds (ETFs) with the launch of the Vanguard Emerging Markets Government Bond Index ETF. The new fund is expected to be rolled out in the US by the end of the second quarter of 2013.

Vanguard unveils plans for emerging markets government bond ETF

Bill McNabb, CEO of Vanguard.

Vanguard manages over $720 billion in fixed income assets across various fund structures, including 13 bond index ETFs.

In early February, Vanguard announced plans for the Vanguard Total International Bond Index ETF, which along with the new emerging markets fund represents the company’s first international fixed income offerings for US investors.

An amended registration statement for the new fund has been filed with the US SEC detailing a new target benchmark – the Barclays USD Emerging Markets Government RIC Capped Index.

The benchmark features approximately 540 government, agency and local authority bonds from 155 issuers and, when necessary, limits weightings of individual debt issuers to meet IRS diversification requirements. The top three country holdings (as of January 31, 2013) were Russia (13.8%), Brazil (10.6%), and Mexico (8.5%). The fund will invest solely in US dollar-denominated emerging market bonds to protect US-based investors from currency risk.

Vanguard CEO Bill McNabb said: “Our research shows that emerging markets bonds have presented low correlations with domestic and developed market bonds, and have the potential to add value for certain risk-tolerant investors holding an otherwise broadly diversified portfolio. Nevertheless, we do caution investors against simply investing on the basis of the higher yields offered by emerging markets bonds, as the higher yields are accompanied by higher risks, including greater volatility and higher correlation to equity markets, as well as political risk.”

The fund has been designed for investors seeking low-cost exposure to a sizable and growing portion of the international fixed income universe, and who are willing to accept the generally higher risk of emerging markets bonds relative to the aggregate international fixed income market.

The fund will have an expense ratio of 0.35%.

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