According to Vanguard, the global credit bond fund costs less than all active retail funds offered in the global credit bond category in the UK.
The fund will invest in a broadly diversified portfolio of global credit bonds including high quality bonds from corporate issuers, government agencies and also supranational organisations around the world.
Vanguard said despite the low-yield environment, bonds can play a critical role as a diversifier in investors’ portfolios.
Vanguard’s Fixed Income Group, with more than $1.2trn (£885bn) in assets under management globally, and more than 35 years’ active fixed income experience, will actively manage the fund.
Rather than rely on one individual to make decisions, the fixed income group takes a team-based, global approach to managing Vanguard’s actively managed fixed income funds. This disciplined and risk-controlled approach is meant to leverage the capabilities of multiple teams and is designed to maximise the collective and specialised expertise of Vanguard’s portfolio managers, credit and rate analysts, researchers and traders.
Vanguard’s senior strategy management group maintains oversight over the teams and collaborates with the risk management group to ensure there is an additional, independent layer of risk control to the investment process, a spokesman added.
In 2016, Vanguard launched four low-cost actively managed funds in the UK. It has said the global credit bond fund represents the firm’s continued commitment to offering low-cost, high-value index and active funds to help investors meet their needs.
Provider view:
Paul Malloy, head of fixed income for Vanguard in Europe, said: “The case for investing in high quality, liquid global credit bonds is compelling as it can offer a reasonable income compared with other bond and equity income strategies. Another important element is the universe the fund will invest in will typically have lower volatility than high yield bonds or equities, helping to offset a portfolio’s return volatility. Investors should also pay close attention to costs, as the impact of fees is amplified in a low-yield market environment.”
Adviser view:
Andrew Wilson, chief investment officer at Lockhart Capital, said: “The sheer size of Vanguard, supported by its original ethos, means that it can and will compete on cost, even in the active space.
“UK investors should welcome this launch, as fund charges are still excessively high in the UK, and there is plenty of scope for them to be competed down. A price war would be very much to the customer's benefit in this case. However, that is not to say that one shouldn't pay up for skill and alpha in limited supply. It is just that there are far fewer generators of such alpha than there are over-priced funds.
“The only danger would be if the more boutique investment houses were forced out of business by a collapse in management fees."
Charges:
Ongoing charge figure of 0.35 per cent for investor share classes and 0.3 per cent for institutional share classes.
Verdict:
The current environment is challenging for bond funds, with rates rising in the US and the threat of tightening of monetary policy hanging over the UK and Europe. However, structurally there is a place for bonds in the portfolios of many investors, particularly those approaching or in retirement, even though at the moment yields are such that they might well be tempted to look elsewhere. A new bond fund launch such as this probably needs to look to the long term when it comes to gaining traction with investors.
