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Products February 7, 2013
Vanguard to Further Diversify TDFs
Vanguard plans to add an international bond index
fund to 20 all-in-one funds, including Vanguard Target Retirement Funds.
Reported by PLANADVISER staff
The international bond component
will complement the three other core holdings of Vanguard’s all-in-one funds:
Vanguard Total Stock Market Index Fund, Vanguard Total International Stock
Index Fund and Vanguard Total Bond Market II Index Fund.
Vanguard’s 12 Target Retirement Funds, four LifeStrategy Funds, two of its
three Managed Payout Funds and two Vanguard Variable Insurance Funds will
apportion 20% of their respective fixed-income allocations to the new Vanguard
Total International Bond Index Fund, which is in registration with the Securities
and Exchange Commission (SEC). (See “Vanguard
to Debut International Bond Index Fund.”)
In addition, Vanguard Short-Term
Inflation-Protected Securities Index Fund (Short-Term TIPS Fund) will replace
Vanguard Inflation-Protected Securities Fund in the three Target Retirement
Funds that offer exposure to TIPS: the Target Retirement Income, 2010 and 2015
Funds. The Short-Term TIPS Fund will have initial weightings in the Target
Retirement Income, 2010 and 2015 Funds of 17%, 11% and 4%, respectively.
The overall strategic asset allocation and glidepath of the Target Retirement
Funds will not change. The addition of hedged international bonds represents a
refinement of the funds’ fixed-income component, bringing long-term
diversification benefits. An allocation to short-term TIPS provides retirees
and preretirees with improved inflation protection with less
volatility.
The Short-Term TIPS Fund, which features an average duration of less than three years, will replace the Inflation-Protected Securities Fund, which has a current average duration of 8.5 years. The Short-Term TIPS Fund seeks to track the performance of the Barclays U.S. Treasury Inflation-Protected Securities (TIPS) 0-5 Year Index, a market-weighted index that measures the performance of inflation-protected public obligations of the U.S. Treasury with a remaining maturity of less than five years. As of December 31, the index had an average duration of 2.5 years and an average maturity of 2.6 years.