Vanguard, the third-largest ETF provider by assets, today launches both its new international bond ETF fund and its emerging markets bond ETF, ending years of waiting for the firm that pioneered retail index investing to move into some of the most popular and unexplored pockets of the investment markets.
Both of the new funds will have their primary listings on the Nasdaq, the exchange said. The Vanguard Total International Bond ETF (BNDX) will have an annual expense ratio of 0.20 percent, or $20 for each $10,000 invested.
The Vanguard Emerging Markets Government Bond ETF (VWOB) will meanwhile have an annual expense ratio of 0.35 percent, or $35 for each $10,000 invested, the company said last week in a press release.
International bond funds are growing in popularity with investors who increasingly look to the segment for income-generating diversification as well as helping to mitigate overall portfolio volatility. Vanguard is arguably a latecomer to the international bond space, particularly regarding the relatively popular emerging markets debt space, though the broad international fixed-income segment is somewhat sparsely populated.
Vanguard hedged the currency exposure in both funds—the international bond fund will have a currency hedge overlay, while the emerging markets bond fund will own dollar-denominated credits.
Those may end up being shrewd fund-design moves given the renewed popularity in international investments that neutralize currency exposure.
Additionally, views are growing that the U.S. dollar may well be on the verge of embarking on a secular strengthening trend following almost 15 years of weakening, as the world’s biggest economy looks likely to lead the developed world out of its post-crash sluggishness.
In any case, currency risk always lingers as a factor that can affect returns.
If history is any guide, Vanguard’s at-cost business model that makes fee cuts a matter of course as funds gather assets is likely to keep downward pressure on fees in the coming years.
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