Vanguard planning US total corporate bond ETF of ETFs

Aug 30th, 2017 | By | Category: Fixed Income

Vanguard has filed a preliminary registration statement with the Securities and Exchange Commission for the Vanguard Total Corporate Bond ETF which is due to be launched in the fourth quarter of this year. The fund will offer investors access to the entire US investment-grade corporate bond market by investing in other Vanguard ETFs.

Vanguard planning US total corporate bond ETF of ETFs

The Vanguard Total Corporate Bond ETF is due to be launched in the fourth quarter of 2017.

John Hollyer, global head of Vanguard Fixed Income Group, commented: “The new offering complements our existing line-up of total market funds and will provide investors with low-cost, broadly diversified exposure to the US investment-grade corporate bond market.”

To gain its exposure the fund will invest directly in three existing, low-cost ETFs: the Vanguard Short-Term Corporate Bond ETF (VCSH), Vanguard Intermediate-Term Corporate Bond ETF (VCIT), and Vanguard Long-Term Corporate Bond ETF (VCLT), each of which costs just 0.07% per annum.

Each ETF has significant assets under management: VCLT has approximately $2 billion while VCIT has $16.4bn and VCSH has $20.6bn.

The new fund will track the Bloomberg Barclays US Corporate Bond Index. By using existing exposure from the underlying ETFs, the new fund is expected to result in tighter bid/ask spreads and lower operating expenses than investing directly in the underlying index’s constituents. The ETF, the first US-domiciled bond ETF launched by Vanguard since August 2015, is expected to have a total expense ratio of 0.07%.

The fund will compete with the $38bn iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE Arca: LQD) which provides exposure to the broad range of US investment grade corporate bonds through tracking the Markit iBoxx USD Liquid Investment Grade Index. LQD costs 0.15%.

iShares offers a Europe-listed ETF which tracks the same Markit iBoxx index. The iShares $ Corp Bond UCITS ETF (LON: LQDE) has $6.4bn in AUM and a TER of 0.20%.

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