Vanguard expects to launch the first U.S.-based index ETF covering the entire global investment-grade bond universe in the third quarter.
The Vanguard Total World Bond ETF will be structured as an ETF of ETFs, investing in two other Vanguard bond funds: the Vanguard Total Bond Market ETF (BND) and the Vanguard Total International Bond ETF (BNDX), according to a preliminary registration statement filed with the Securities and Exchange Commission.
Vanguard used a similar approach in its Total Corporate Bond ETF (VTC), which invests in the company’s short-, intermediate- and long-term corporate bond ETFs. Unlike VTC, the new world bond ETF will invest in government bonds from the U.S. and other countries in addition to corporate securities.
The new ETF “will be simple, convenient, and highly diversified with an expense ratio in line with our current low-cost fixed income ETFs,” say Vanguard Chief Investment Officer Greg Davis in a statement.
It’s expected that the new global bond ETF will charge an expense ratio of 9 basis points, or 0.09% — slightly more than the 0.05% fee for BND but less than the 0.11% charged for BNDX.
Its non-U.S. bond holdings will include both U.S. dollar-denominated and local currency international debt. The fund “will attempt to hedge its foreign currency exposure, primarily through …. use of foreign currency exchange forward contracts, in order to correlate to the returns of its target index, which is U.S. dollar hedged,” according to the SEC filing.
Its target index will be the Bloomberg Barclays Global Aggregate Float Adjusted Composite Index and its portfolio manager Joshua C. Barrickman, a principal of Vanguard and head of its Fixed Income Indexing Americas. Barrickman has been with Vanguard since 1998 and has managed investment portfolios since 2005.