Vanguard Expands Active Fixed Income Fund Lineup With Emerging Markets Bond Fund

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MFInvestor
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Vanguard Expands Active Fixed Income Fund Lineup With Emerging Markets Bond Fund

Post by MFInvestor » Thu Dec 07, 2017 9:58 am

Vanguard Expands Active Fixed Income Fund Lineup With Emerging Markets Bond Fund

https://pressroom.vanguard.com/news/Pre ... 20617.html
VALLEY FORGE, PA (December 6, 2017)—Vanguard today announced that Vanguard Emerging Markets Bond Fund is available for investment. The new offering expands Vanguard’s U.S.-domiciled active fixed income fund roster to 25 funds and complements the firm’s existing emerging markets bond index offering.

A low-cost active approach to emerging markets bonds

The new fund is designed to offer financial advisors and institutions the potential for additional diversification, along with potentially higher returns that can accompany the considerable volatility associated with emerging markets debt.

The fund’s investment advisor, Vanguard Fixed Income Group, seeks to outperform the JP Morgan EMBI Global Diversified Index by investing in a broadly diversified portfolio of debt issued by emerging market governments and government-owned enterprises, with a majority of its assets either denominated in, or hedged back to, the U.S. dollar.

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jhfenton
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Re: Vanguard Expands Active Fixed Income Fund Lineup With Emerging Markets Bond Fund

Post by jhfenton » Thu Dec 07, 2017 2:47 pm

Ah, so they finally went public with it. They've been incubating the fund for more than a year and a half. The investor shares were listed on M*, but were not available for investment through Vanguard. There were a couple of earlier threads on it.

I have no interest in the fund at current EM yields, but it has smoked the index fund since its inception (+23.5% vs +15.7%) om March 2016.

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Re: Vanguard Expands Active Fixed Income Fund Lineup With Emerging Markets Bond Fund

Post by tj » Thu Dec 07, 2017 2:54 pm

Interesting. Are Emerging Market bonds less risky than Emerging Market stocks?


It looks like The Vanguard Emerging Market Bond index is for government debt only, while this fund can invest in corporate debt in the emerging markets as well.

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Re: Vanguard Expands Active Fixed Income Fund Lineup With Emerging Markets Bond Fund

Post by jhfenton » Thu Dec 07, 2017 3:02 pm

tj wrote:
Thu Dec 07, 2017 2:54 pm
Interesting. Are Emerging Market bonds less risky than Emerging Market stocks?


It looks like The Vanguard Emerging Market Bond index is for government debt only, while this fund can invest in corporate debt in the emerging markets as well.
You might get some currency exposure too. The Index fund invests only in dollar-denominated bonds. This says a "majority" of the fund will be in either dollar-denominated bonds or hedged back to the dollar.

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Re: Vanguard Expands Active Fixed Income Fund Lineup With Emerging Markets Bond Fund

Post by teigers » Thu Dec 07, 2017 3:02 pm

Anyone know what slice of the market portfolio emerging market bonds account for?

Thesaints
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Re: Vanguard Expands Active Fixed Income Fund Lineup With Emerging Markets Bond Fund

Post by Thesaints » Thu Dec 07, 2017 3:05 pm

Dollar denominated, or currency hedged issues. Investment grade. Although they do include a good slice of unrated bonds.

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Re: Vanguard Expands Active Fixed Income Fund Lineup With Emerging Markets Bond Fund

Post by spdoublebass » Fri Dec 08, 2017 1:01 am

teigers wrote:
Thu Dec 07, 2017 3:02 pm
Anyone know what slice of the market portfolio emerging market bonds account for?
Back around June it was:
US 38.9% (BND)
Developed ex-US 41.7% (BNDX)
Emerging 19.4% (VWOB)

I don't know what EM bond vs Gov ratio would be. Others probably do.
Resist much, obey little.

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Re: Vanguard Expands Active Fixed Income Fund Lineup With Emerging Markets Bond Fund

Post by rkhusky » Fri Dec 08, 2017 8:36 am

spdoublebass wrote:
Fri Dec 08, 2017 1:01 am
teigers wrote:
Thu Dec 07, 2017 3:02 pm
Anyone know what slice of the market portfolio emerging market bonds account for?
Back around June it was:
US 38.9% (BND)
Developed ex-US 41.7% (BNDX)
Emerging 19.4% (VWOB)

I don't know what EM bond vs Gov ratio would be. Others probably do.
That brings up an interesting point. Do those that like market weight between US and Int'l for stocks do the same for bonds? If the above numbers are correct, Vanguards doesn't come close in their target retirement funds. They're not too far away from market weight in the stock department.

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Re: Vanguard Expands Active Fixed Income Fund Lineup With Emerging Markets Bond Fund

Post by tibbitts » Fri Dec 08, 2017 8:56 am

I'm surprised it's been in the works so long. Seemingly it hasn't attracted much attention. I wonder what the expense ratio will be going forward. It's a lot for most of us to commit $50k to the fund (necessary in the case of the fund vs. ETF to save the extra expenses), but is anyone considering substituting for a part of a high yield (US) allocation? Obviously we have the treasury-only crowd here but we also have the active Wellesley and Wellington and active US bond crowd, and it seems like this would appeal to them. I've had (a smaller amount in) the Fidelity EM bond fund since forever it seems, and can't complain,except about the expense ratio.

I think especially in the current yield-starved environment where even stay-the-course icons are straying, there would have already been more discussion here about this.

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Re: Vanguard Expands Active Fixed Income Fund Lineup With Emerging Markets Bond Fund

Post by nisiprius » Fri Dec 08, 2017 5:12 pm

tj wrote:
Thu Dec 07, 2017 2:54 pm
...Interesting. Are Emerging Market bonds less risky than Emerging Market stocks?...
Vanguard says so.

VEMBX (and VGOVX, Vanguard Emerging Markets Government Bond Index Fund)
Image
Moderate funds—Risk level 3
Vanguard funds classified as moderate are subject to a moderate degree of fluctuation in share prices. In general, such funds may be appropriate for investors who have a relatively long investment horizon (more than five years).
VEIEX, Vanguard Emerging Markets Stock Index Fund
Image
Aggressive funds—Risk level 5
Vanguard funds classified as aggressive are subject to extremely wide fluctuations in share price. These funds may be appropriate for investors who have a long-term investment horizon (ten years or longer). The unusually high volatility associated with these funds may stem from a number of strategies.
The Vanguard risk categories are very broad and rough.

Personally, though, I question whether emerging markets bonds belong in that risk category. It's all a question of whether we remember 1998, and whether we think it could ever happen again. Here's how Fidelity's emerging markets bond funds, and Morningstar's benchmark for them, behaved back then. A 40% drop in a bond fund? That's more than (one) (carefully picked with hindsight) Vanguard stock fund, VCSAX, dropped in 2008-2009.

Source
Image
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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spdoublebass
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Re: Vanguard Expands Active Fixed Income Fund Lineup With Emerging Markets Bond Fund

Post by spdoublebass » Fri Dec 08, 2017 5:36 pm

rkhusky wrote:
Fri Dec 08, 2017 8:36 am
spdoublebass wrote:
Fri Dec 08, 2017 1:01 am
teigers wrote:
Thu Dec 07, 2017 3:02 pm
Anyone know what slice of the market portfolio emerging market bonds account for?
Back around June it was:
US 38.9% (BND)
Developed ex-US 41.7% (BNDX)
Emerging 19.4% (VWOB)

I don't know what EM bond vs Gov ratio would be. Others probably do.
That brings up an interesting point. Do those that like market weight between US and Int'l for stocks do the same for bonds? If the above numbers are correct, Vanguards doesn't come close in their target retirement funds. They're not too far away from market weight in the stock department.

I do, but in my own fashion. I have half of my portfolio at global market weight (VT) and half devoted to US (VTI).

Although my FI is only 10% of my portfolio, I split it the same way, half at market weight and have domestic.

What I’ve noticed is that the international bonds are not horrible, about 2.68% YTD, EM Gov Bond is 8.06% YTD. The difference is in their yields. Int sec yield is .70% and EM gov bond at 4.11%. To me the addition of EM gov bond to Int Bond makes it a little nicer mix.


I wanted half of my portfolio at market weight, I was after the diversification.

So, yes, to those that did the math...with only 10% Total in FI, that would mean 2% in Int Bond and 1% in EMBond. I know that anything under 5% is pointless, but I wanted to hold market weight. I also wanted to practice holding bonds and learning about them.
Resist much, obey little.

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