Vanguard UK Short-Term Investment Grade Bond Index Fund

Transcription

1 Vanguard UK Short-Term Investment Grade Bond Index Fund May 2013 LAUNCH BRIEFING

2 Fund summary The Vanguard UK Short-Term Investment Grade Bond Index Fund expands the low-cost asset allocation building blocks offered by Vanguard and is likely to appeal to investors seeking to diversify their overall portfolio or their bond allocation The fund may additionally be useful for investors seeking current income with investment grade-rated credit quality Its focus on short maturities means that it can be used to reduce portfolio duration as a way of managing interest rate risk The fund is focused on the sterling non-gilt investment grade market, not simply pure corporate bonds 2

3 Background: Existing Vanguard U.K. bond fund range This new product fills a gap in the line up and will enable UK investors to manage their duration risk more efficiently Short Intermediate Long Aaa Aa1 Aa2 UK Government (1.74%) UK Long Duration (2.99%) UK Inflation-Linked (2.53%) Existing Product New Fund Average CQ (Moody's) Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 UK Short-Term Invest Grade (2.12%) UK Investment Grade (3.20%) Investment Grade Non-Investment Grade Average Duration (Yrs) Source: Vanguard Data as of March 2013 UK Short-Term Investment Grade data relates to the benchmark index 3

4 U.K. Short-Term Investment Grade Bond Index Fund profile Investment objective The Fund seeks to provide returns consistent with the performance of the Barclays Global Aggregate 500MM U.K. Non-Government 1-5 Year Float Adjusted Bond Index Investment policy The Index includes investment-grade bonds, excluding government bonds, denominated in UK pounds sterling, with maturities between 1 and 5 years that pass screening for size. To the extent practicable, the fund uses a full replication strategy to select securities, so that the fund invests in all the constituents of the Index, making the weight of such investments approximate those of the Index. When not practicable to fully replicate, the fund uses a sampling process, meaning that it holds a range of securities that, in the aggregate, approximate the full Index in terms of key risk factors and other characteristics, including, but not limited to, asset type, credit quality and risk profile. Data category Fund Detail* Domicile Ireland Benchmark Barclays Global Aggregate 500MM U.K. Non-Government 1-5Year Float Adjusted Bond Index Holdings Sterling-denominated investment grade short term instruments ex Gilts Positions 136 Yield 2.12% Average credit quality AA3 Modified duration 2.80 years Total expense ratio (TER) 20 bps Preset dilution levy (PDL) 50 bps on purchases / none on redemptions Anticipated tracking error 10 bps (not guaranteed) Share classes at launch Sterling Income / Sterling Accumulation Minimum subscription 100,000 for direct investors. Platforms will vary Source: Vanguard and Barclays * Data as of March 2013 Data relates to the benchmark index 4

5 Anticipated fund composition based on benchmark index While U.K. is in the name of the fund, the Index includes any investment-grade bonds, excluding government bonds, which are denominated in UK pounds sterling UK Short-Term Investment Grade Bond Index Fund Country Holdings %* United Kingdom 29.11% Supranational 20.64% Germany 15.00% United States 10.27% Netherlands 5.38% France 4.59% Australia 3.24% Italy 2.83% Sweden 2.36% Spain 1.79% Canada 0.99% Belgium 0.95% Finland 0.81% Switzerland 0.60% Japan 0.56% Norway 0.45% Denmark 0.43% Grand total % Sectors Class 1 Class 2 Count* Weight* CORPORATES FINANCIAL % CORPORATES INDUSTRIAL % CORPORATES UTILITY 6 3.3% GOV_RELATED AGENCIES % GOV_RELATED SOVEREIGN 1 0.5% GOV_RELATED SUPRANATIONAL % SECURITIZED ABS 6 3.4% SECURITIZED COVERED 1 0.6% Grand total % Sector definitions and examples Class 2 Definition Example AGENCIES Entities that are not 100% government owned, and that have no guarantee, but carry out government policies, NETWORK RAIL LTD and benefit from closeness to the central government. SUPRANATIONAL An international organization that transcend national boundaries EUROPEAN INVESTMENT BANK ABS Credit Cards, Auto Backed, Home Equity, Student Loans, Residential SLM STUDENT Mortgage LOAN COVERED Recourse debt secured by a pool of assets. The recourse to originators is the difference between Covered and ABS issues HBOS PLC Source: Barclays Data as of March

6 How does the fund differ from its competitors? The fund is focused on the sterling non-gilt investment grade market, not simply pure corporate bonds The IMA, Morningstar and Lipper universes combine these two types of funds and do not distinguish by maturity Sectors Investment grade funds Corporate-only funds Corporates (Financials, Industrials, Utilities) * Government Related (Agencies, Local Authorities, Sovereign, Supranational) X Securitised (ABS, CMBS, Covered Bonds) X * High concentration in financials Providing high levels of diversification 6

7 Lower volatility in times of stress 12-month rolling returns from the broad non-gilt market and pure corporates are relatively similar during periods of stability However, when markets are under stress, returns have been vastly different Investment Grade provides greater diversification and less volatility than a pure corporate fund This is consistent with Vanguard s philosophy of offering a broad and diversified portfolio 20.00% 15.00% 10.00% 5.00% 0.00% -5.00% 9/1/ /1/2003 3/1/2004 6/1/2004 9/1/ /1/2004 3/1/2005 6/1/2005 9/1/ /1/2005 3/1/2006 6/1/2006 9/1/ /1/2006 3/1/2007 6/1/2007 9/1/ /1/2007 3/1/2008 6/1/2008 9/1/ /1/2008 3/1/2009 6/1/2009 9/1/ /1/2009 3/1/2010 6/1/2010 9/1/ /1/2010 3/1/2011 6/1/2011 9/1/ /1/2011 3/1/2012 6/1/2012 9/1/2012 Barclays Global Aggregate 500MM Sterling Corporate 1-5 Year Bond Index ("Investment grade") Barclays Global Sterling Corporate 1-5 Year Bond Index ("Corporate-only") Source: Barclays Past performance is not a guide to the future 7

8 Important information The material contained in this document is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction other than the UK. The information in this presentation does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this presentation when making any investment decisions. Vanguard Asset Management, Limited only gives information on products and services and does not give investment advice based on individual circumstances. The value of investments, and the income from them, may fall or rise and investors may get back less than they invested. Corporate bonds may provide higher yields but as such may carry greater credit risk increasing the risk of default on repayment and erosion of the capital value of your investment and the level of income may fluctuate. Funds investing in fixed interest securities carry the high risk of default on repayment and erosion of the capital value of your investment and the level of income may fluctuate. Movements in interest rates are likely to affect the capital value of fixed interest securities. Past performance is not a reliable indicator of future results. The Central Bank of Ireland has granted authorisation for the Vanguard UK Government Bond Index Fund to invest up to 100% of net assets in different Transferable Securities and Money Market Instruments issued or guaranteed by any EU Member State, its local authorities, non-eu Member States or public international body of which one or more EU Member States are members. The Vanguard UK Government Bond Index Fund invests more than 35% of its scheme property in transferable securities and money market instruments issued or guaranteed by the UK. For further information on the fund s investment policy, please refer to the Key Investor Information Document ( KIID ). The Vanguard U.K. Long Duration Gilt Index Fund and The Vanguard U.K. Inflation Linked Gilt Fund invests more than 35% of its scheme property in transferable securities and money market instruments issued or guaranteed by the UK. For further information on the fund s investment policy, please refer to the Key Investor Information Document ( KIID ). The Manager of Vanguard Investment Series plc is Vanguard Group (Ireland) Limited. Vanguard Asset Management, Limited is a distributor of Vanguard Investment Series plc. Vanguard Investment Series plc has been authorised by the Financial Regulator in Ireland as a UCITS and has been registered for public distribution in certain EU countries. Prospective investors are referred to the Funds' prospectus for further information. Prospective investors are also urged to consult their own professional advisors on the implications of making an investment in, and holding or disposing shares of the Funds and the receipt of distributions with respect to such shares under the law of the countries in which they are liable to taxation. Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Conduct Authority Vanguard Asset Management,Limited. All rights reserved. VAM