InvestmentsMar 9 2016

Vanguard targets US and Euro debt with four ETFs

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by

Vanguard has expanded its fixed income offering with the launch of four exchange traded funds that will invest in US and European debt.

The funds, listed on the London Stock Exchange, will offer regional exposure to US and European corporate bonds, US Treasuries and euro-denominated debt issued by governments based in the eurozone.

Lida Eslami, listed products manager of the London Stock Exchange, said: “We are delighted to welcome Vanguard’s four new fixed-income ETFs on the London Stock Exchange today. This listing is testament to London’s continuing status as the pre-eminent European destination for issuers and investors.

“Total on-exchange turnover of fixed-income ETFs on our markets was more than £88billion in 2015, up by 84 per cent compared to 2014 – a clear demonstration of the growing appetite for these instruments.”

Vanguard USD Corporate Bond Ucits ETF, Vanguard EUR Corporate Bond Ucits ETF, Vanguard EUR Eurozone Government Bond Ucits ETF and Vanguard USD Treasury Bond Ucits ETF all come with an operating cash flow of 0.12 per cent and will track the Barclays indices.

Vanguard now offers 21 ETFs in the UK. The new fixed income ETFs are in addition to the Vanguard UK Government Bond Ucits ETF, which is already listed on the London Stock Exchange.

New ETFOCF (%)
Vanguard USD Corporate Bond UCITS ETF0.12
Vanguard EUR Corporate Bond UCITS ETF0.12
Vanguard EUR Eurozone Government Bond UCITS ETF0.12
Vanguard USD Treasury Bond UCITS ETF0.12

Provider view

Ken Volpert, head of investments for Vanguard in Europe, commented: “Today’s launch complements Vanguard’s existing range of index mutual funds and ETFs. They will enable investors to build a broadly diversified fixed income and equity portfolio at a low cost. As one of the world’s largest fixed income managers with approximately $900bn (£640bn) in assets globally, Vanguard has a strong track record for managing high-quality, low-cost fixed income funds.”

Adviser view

Paul Lindfield, director of wealth management at Manchester-based Sedulo Wealth Management, said: “I think there is a good demand for passive investments. I tend to have a bias toward actively managed funds, but we do blend them with passive investments on the basis of diversification, and to keep investment costs down.

“Most of our propositions are risk-targeted multi-asset funds. If the client is cost-sensitive, we will build a portfolio based on passive investments. On the other hand, if a client is looking for excessive returns, we build a portfolio of actively managed funds because past performance shows that risk- targeted active funds have outperformed risk-targeted passive funds.”

Mr Lindfield added: “Inflation is artificial at the moment because of the cost of commodities – the cost of oil especially. Interest rates will creep up within the next two and three years, which will drive bond prices down. That represents investment risk in the near future, but not yet. The suitability of an investment is determined by the client’s attitude to risk and how long they want to invest for.”

Charges

Ongoing charges figure of 0.12 per cent.

Verdict

There is certainly a market for passive investments. One of the biggest draws to this type of investment for clients is the price. Passives can be considerably cheaper than active funds.

Here, the OCF is attractive. At a time of uncertainty and volatility, exposure to corporate and sovereign debt from developed economies could appeal to risk-adverse investors. Meanwhile, emerging market debt might suit clients with a high attitude to risk who want to invest for the long term.