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June 26, 2019 at 10:26 AM
A Vanguard sign at a trade show (Photo: AP)
Vanguard has launched its first commodities fund, keeping to a debut date that it had announced in April.
The Vanguard Commodity Strategy Fund (VCMDX) is an actively managed low-cost fund that seeks to provide investors both diversification and inflation protection within a balanced portfolio. It invests 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 seeks to outperform the Bloomberg Commodity Total Return Index.
(Related: Vanguard Plans First Commodities Fund)
The fund is available only as Admiral Shares, which require a $50,000 minimum investment and has an expense ratio of 0.20%, far below the 1.24% average expense ratio of competing actively managed commodity funds (0.92% median for institutional shares) according to Morningstar.
“Inflation fluctuations are difficult to predict and can have significant impact on both stock and bond market returns. Vanguard believes that a diversified blend of commodity-linked futures and short-term TIPS can provide diversification benefits in the event of unexpected inflation, as commodities returns have historically exhibited low correlation to those of the equity and fixed income markets,” according to the company.
Inflation indicators, however, have been falling. The personal consumption expenditures (PCE) price index excluding the volatile food and energy components increased at a 1.0% annual rate in the first quarter, which was down from a 1.3% increase reported previously, and May core and headline Consumer Price Index increases also came in below expectations at 2% and 1.8%, respectively. In addition oil prices have been slumping.
