Vanguard has filed a preliminary registration statement with the Securities and Exchange Commission to launch its first bond ETF covering the entire U.S. corporate investment-grade bond market.
The Vanguard Total Corporate Bond ETF will consist of three existing Vanguard bond ETFs: the Vanguard Short-Term Corporate Bond ETF (VCSH), Vanguard Intermediate-Term Corporate Bond ETF (VCIT), and Vanguard Long-Term Corporate Bond ETF (VCLT), and it will cost investors an estimated annual fee (expense ratio) of seven basis points.
(Related: Vanguard Plans 2 New Actively Managed Funds)
The fund is expected to launch in the fourth quarter, and it will be Vanguard’s first U.S. bond ETF launch since its Tax-Exempt Bond Index ETF (VTEB) was introduced in August 2015.
The new fund will also be Vanguard’s first U.S.-based ETF comprising multiple ETFs and offered as a single share class, but not its first ETF using that structure. The fund behemoth offers such single share class products in many international markets, beginning in Australia in 2009 and now including Canada, Europe and Hong Kong as well.
“The new offering complements our existing lineup of total market funds and will provide investors with low-cost, broadly diversified exposure to the U.S. investment grade corporate bond market,” said John Hollyer, global head of the Vanguard Fixed Income Group, in a statement.
A Vanguard spokesman said the fund of fund structure will allow the new ETF “to benefit from $39 billion in immediate scale from the underlying funds, which hold more than 5,500 bonds,” as well as from narrower bid/ask spreads compared with a traditional fund that invests in assets directly.
Todd Rosenbluth, director of ETF and Mutual Fund Research at CFRA, says the structure of the new fund makes sense for Vanguard because it “should help keep trading costs low, enable monthly rebalancing with less effort and allow Vanguard to gather assets more quickly.”
He expects the new ETF will hold more than three times the number of issues as iShares Investment Grade Corporate Bond (LQD), which focuses on only the most liquid bonds. The new ETF will also complement Vanguard’s Total Bond Market (BND) fund, which is heavily invested in government bonds, says Rosenbluth.
Vanguard manages $4.5 trillion in global assets, including $1.2 trillion in fixed income. Corporate bonds account for more than a quarter of its fixed income assets. Vanguard’s Fixed Income Group will serve as the investment advisor to the new ETF.
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