Close Close

Portfolio > Alternative Investments > Commodities

Vanguard Plans First Commodities Fund

Your article was successfully shared with the contacts you provided.

Vanguard plans to launch its first commodities fund in June.

The actively managed Vanguard Commodity Strategy is intended as “a low-cost, broad-based option for advisors and institutional investors seeking additional diversification and inflation protection for a well-balanced portfolio,” said Matt Brancato, head of Vanguard’s portfolio review department, in a statement.

The fund will offer only Admiral shares, at a minimum $50,000 investment, and have an estimated 20 basis-point expense ratio, far below the 1.25% average for actively managed commodity mutual funds (or 0.92% median for their institutional shares), according to Morningstar data.

The new fund will invest in commodity-linked derivative investments such as commodity futures and swaps, collateralized by a mix of Treasury bills and short-term Treasury inflation-protected securities (TIPS), and it will seek to outperform the Bloomberg Commodity Total Return Index.

Vanguard’s Quantitative Equity and Fixed Income Groups will serve as the fund’s advisors. The quantitative equity team already manages the commodity strategy of the Vanguard Payout Fund, which will reallocate its commodities allocation to the new fund.

In an April 2018 commentary on its website, Vanguard said “commodities can be a sensible part of a diversified investment strategy — particularly for sophisticated investors — but their complexity and costs are stumbling blocks to wider use.”

Now the firm seens to have realized there could be interest among investors with some degree of sophistication for “a cost-effective open-end” commodities fund that uses a strategy already used in another fund (Managed Payout), said Alec Lucas, a senior analyst at Morningstar. He said the new Vanguard commodities fund will represent “competent active management blended together with very low fees.”

The Vanguard Commodity Strategy is the second actively managed fund that Vanguard expects to launch this year. Last month it announced plans to introduce its first actively managed environmental, social and governance focused fund midyear.

Unlike that fund, the Commodity Strategy Fund will managed by an in-house subadvisors and it will charge far less. The Global ESG Select Stock Fund will be managed by an outside subadvisor, Wellington Management Co., and it will have an expense ratio of 45 basis points for Admiral shares, which require a $50,000 minimum, and 55 basis points for Investor shares, which require a $3,000 investment.

As of Feb. 28, 2018, Vanguard managed $5.3 trillion in global assets, with more than one-fifth ($1.3 trillion) in actively managed funds.

Related on ThinkAdvisor: