Vanguard, the Valley Forge, Pennsylvania-based third largest exchange traded funds issuer with nearly $286 billion in ETF assets, and one of the biggest asset management firms in the world, will roll out its much-awaited emerging markets bond ETF in early June, once the ‘subscription period’ of its mutual fund with the same strategy is complete.
The ETF shares of Vanguard Emerging Markets Government Bond Index Fund (VWOB) is in a so-called ‘subscription period’ from May 14 until May 30. During this period, the fund aims to accumulate enough assets to build a representative and diversified portfolio that will track the Barclays USD Emerging Markets Government RIC Capped Index. Until then, the portfolio will invest in money market funds.
The underlying benchmark comprises about 560 government, agency and local authority issuers and consists only of US dollar denominated emerging market bonds. The index will limit weightings of individual issuers when necessary to meet the IRS investment company diversification requirements.
Though international bond funds have been growing in popularity since the segment offers income generating diversification that can help lower overall portfolio volatility, you should bear in mind that emerging market bonds have higher risks relative to the collective fixed-income market. Vanguard suggests investors with well-diversified and balanced portfolios consider this fund for a portion of their asset holdings.
VWOB’s 0.35 percent expense ratio compares favorably with 0.5 percent for PowerShares Emerging Markets Sovereign Debt Portfolio (PCY) though the latter tracks a different index. The launch will mean a low cost option in a niche whose yields typically vary between 4 and 5 percent.
Disclosure: No holdings
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