Vanguard to Launch Total World Bond ETF

May 22, 2018 — 11:33 AM EDT

Vanguard is gearing up to launch a new exchange-traded fund, announcing that it filed a preliminary registration statement with the Securities and Exchange Commission for the Vanguard Total World Bond ETF. In a press release, one of the world's largest fund companies said that it is the industry's first U.S.-domiciled index product that provides investors with access to bonds on a global basis. Vanguard said that the Total World Bond ETF is expected to be available as of the third quarter of this year.  

"With the Total World Bond ETF, Vanguard will be the first firm to offer U.S. investors a single index product with exposure to the entire global investment-grade bond universe," said Vanguard Chief Investment Officer Greg Davis in the press release. "It will be simple, convenient, and highly diversified, with an expense ratio in line with our current low-cost fixed income ETFs."

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Pointing to its own internal research, the fund company said that currency-hedged global bond exposure gives investors diversification that can reduce volatility and provide smoother returns over the long haul. It's particularly important in the current market environment in which volatility is back with a vengeance. Two of the main drivers of bond returns are interest rates and inflation, which fluctuate in other countries. As a result, Vanguard said a portfolio that includes bonds of lots of countries and issuers can give investors more diversification benefits.

According to Vanguard, the new fund will be structured as an ETF of ETFs, which means it will invest directly in two existing ETFs: the Vanguard Total Bond Market ETF (BND) and the Vanguard Total International Bond ETF (BNDX). The fund company said that, by structuring the fund in this manner, the new ETF can achieve "immediate scale" by using the existing exposure from the underlying ETFs. That, the fund company noted, should result in a tighter spread between bid and ask prices as well as lower the operating expenses.

Vanguard noted that this is similar to the approach it took with the Vanguard Total Corporate Bond ETF, which was launched in November and invests in Vanguard's existing short-term, immediate-term and long-term corporate bond ETFs. The new ETF will track the Bloomberg Barclays Global Aggregate Float Adjusted Composite Index and will have an estimated expense ratio of 0.09%, noted Vanguard in the press release.

Vanguard Fixed Income Group, which manages more than $1.3 trillion in assets and employs more than 175 investment professionals around the world, will serve as the investment advisor to Vanguard Total World Bond ETF.