New actively managed bond fund offers diversified access to global credit markets

November 15, 2018

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Vanguard today introduced Vanguard Global Credit Bond Fund, an active fund for investors seeking globally diversified exposure to investment-grade credit. 1

The fund offers broad, diversified exposure to U.S. and non-U.S. investment-grade securities, including those issued by corporate and noncorporate credit entities. The majority of the non-U.S. portfolio is hedged to the U.S. dollar in an effort to manage currency risk and preserve the fund's credit focus. The Global Credit Bond Fund, in keeping with all Vanguard actively managed fixed income funds, seeks to deliver consistent outperformance at a lower cost than most competing funds, thereby offering investors the potential for higher value over time.

"We're excited to add the Global Credit Bond Fund to Vanguard's U.S. lineup of active fixed income products," said John Hollyer, global head of Vanguard's Fixed Income Group (FIG). "Its globally diversified structure and investment approach reflect the resources and capabilities we have continued to develop during our more than 35-year history of managing active fixed income strategies for our clients."

The fund is offered in two share classes, with estimated expense ratios of 0.35% for Investor Shares and 0.25% for Admiral Shares. The asset-weighted average expense ratio of active funds in the world bond category is 0.65%. 2

The Global Credit Bond Fund can serve as a key part of core fixed income portfolios for your clients who have an active preference and are trying to reduce a home bias and expand global holdings. It seeks to provide a moderate and sustainable level of current income and can be used in combination with a U.S. or global aggregate portfolio to achieve a specific exposure to investment-grade credit.

As of September 30, 2018, the $260 billion world bond category, 56% of which is actively managed, represented a large but fragmented asset class with a wide range of exposures to market sectors, countries, currencies, and credit quality. Investing in global credit has the potential to improve long-term outcomes by providing higher risk-adjusted returns with considerably lower volatility than an investment solely in U.S. investment-grade bonds, according to Vanguard analysis of benchmark returns. 3

The fund's investment strategy employs a fundamental approach to identifying relative value based on security selection, sector allocation, and interest rate views. The fund is actively managed around the Bloomberg Barclays Global Aggregate Credit Index (USD hedged). The global credit universe is made up of approximately 65% U.S. dollar-denominated securities, while the remaining 35% represents local-currency developed and emerging markets securities. The fund hedges the majority of the local-currency exposure to the U.S. dollar to preserve the fund's credit focus.

Vanguard is one of the world's largest fixed income fund managers, with approximately $1.3 trillion in assets under management globally as of September 30, 2018, $232 billion of which was in active taxable bond funds. FIG has more than 175 global fixed income professionals, 90 of whom are part of FIG's active taxable fixed income team, including more than 30 global credit research analysts around the world. Vanguard has added to its long-standing lineup of actively managed bond funds with the launch of Vanguard Ultra-Short-Term Bond Fund in February 2015 and Vanguard Core Bond Fund and Vanguard Emerging Markets Bond Fund in March 2016. The Global Credit Bond Fund offers exposure designed to capitalize on the firm's global investment capabilities and credit selection expertise.

FIG uses a highly collaborative, team-based approach to managing its funds. The portfolio managers for the Global Credit Bond Fund are Daniel Shaykevich and Samuel C. Martinez, CFA. Daniel is a principal and portfolio manager and co-head of FIG's Emerging Markets and Sovereign Debt Team. He has worked in investment management since 2001. He earned a B.S. from Carnegie Mellon University. Samuel is a portfolio manager and co-head of the Structured Products Team in FIG. He has worked in investment management since 2010. He earned an M.B.A. from The Wharton School of the University of Pennsylvania and a B.S. from Southern Utah University.

1 Investment-grade fixed income securities are those rated the equivalent of Baa3 and above by Moody's or another independent rating agency.
2 Morningstar, Inc., as of September 30, 2018.
3 The 15-year annualized return/standard deviation ratio for the Bloomberg Barclays U.S. Credit Index was 0.94 as of March 31, 2018, compared with 1.18 for the Bloomberg Barclays Global Aggregate Credit Index (USD Hedged).

Notes:

  • Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
  • Diversification does not ensure a profit or protect against a loss.
  • All investing is subject to risk, including the possible loss of the money you invest. Bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer's ability to make such payments will cause the price of that bond to decline. Investments in bonds issued by non-U.S. companies and governments are subject to risks including country/regional risk and currency risk. These risks are especially high in emerging markets.
  • Vanguard Global Credit Bond Fund is subject to currency hedging risk, which is the chance that currency hedging transactions may not perfectly offset the fund's foreign currency exposures and may eliminate any chance for the fund to benefit from favorable fluctuations in relevant currency exchange rates. The fund will incur expenses to hedge its currency exposures.
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