Vanguard Global Bond Index Portfolio (annuity)

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siamond
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Vanguard Global Bond Index Portfolio (annuity)

Post by siamond » Thu Sep 07, 2017 9:20 pm

For historical reasons (don't ask!), I hold a small annuity which I transferred to Vanguard a while ago. I received an e-mail today which indicated that I have a new investment option based on a Vanguard Global Bond Index. Here is the link for the exact description:
https://personal.vanguard.com/us/funds/ ... IntExt=INT

The index that this construct would follow would be a composite index, 70% Bloomberg Barclays U.S. Aggregate Float Adjusted Index, and 30% Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged).

I don't care much about having such option in the annuity, but if this is an indication of Vanguard preparing for a regular low cost index fund centered on Global Bonds, that I would be interested for my regular investments. I don't care much about breaking my US bonds into a combo US/Int'l bonds that I would manage myself, but if a Global fund is made available, then I do not see why I would keep restricting myself to US bonds - assuming this is cost competitive, of course.

Is that a pattern which has been noticed in the past, Vanguard tip-toeing with something in an annuity context, then launching a corresponding full-blown fund later on?

PFInterest
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Re: Vanguard Global Bond Index Portfolio (annuity)

Post by PFInterest » Thu Sep 07, 2017 9:44 pm

no idea, dont have an annuity.

itstoomuch
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Re: Vanguard Global Bond Index Fund (annuity)

Post by itstoomuch » Thu Sep 07, 2017 9:47 pm

Don't know.
Both Fidelity and Vanguard have been late to Variable Annuities and the options offered.
Vanguard is only offering the funds and lending their name. Transamerica (?) or other underwriter bears the annuity risk.
The underwriter may have asked Vanguard to design a fund to give the annuitant buyer more investment options.
or it could be as you suggested, Vanguard is using the annuity platform to make a test of the fund.

Disclaimer:
we don't have either Fidelity or Vanguard annuities. I tried at the time and they were not offering in our state. :(
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Vanguard Global Bond Index Portfolio (annuity)

Post by asset_chaos » Thu Sep 07, 2017 11:45 pm

Vanguard operations outside the US have offered a global bond index fund (based on the Bloomberg Global Aggregate Float Adjusted Index Hedged) for a number of years (6 or 7 at a guess). See, e.g., Swiss vanguard.ch. In Australia Vanguard has just this year started offering a global bond index fund. As per Vanguard's standard view that foreign bonds (foreign depending on the viewpoint of the investor) should be hedged, they appear to offer this global bond index fund in versions hedged to maybe half a dozen major currencies.

Also 70:30 US:non-US doesn't appear to be anywhere near the weighting of the global bond market. For instance, Vanguard Australia says its global bond index fund has the following country weightings as of 31 July:

Code: Select all

United States 40.7  		Australia 1.7 
Japan 12.2  			Korea 1.6
France 7.0  			Belgium 1.2 
Germany 6.3  			Switzerland 0.9 
United Kingdom 4.8 		 Sweden 0.9 
Italy 4.4 		 	Austria 0.8 
Canada 3.8 	 		Mexico 0.8 
Spain 2.9 		 	China 0.5 
Supranational 2.7	 	Denmark 0.4 
Netherlands 2.0 		Other 4.6 
Vanguard is a bit weird with their global offerings. From Vanguard US one can invest in total world stock index that follows a global all-cap index. Outside the US one can invest in Vanguard's global stock index fund that follows the MSCI world index, which in spite of its name is a developed markets only index. Outside the US one can invest in Vanguard's global bond index fund, but there's no global bond index fund available from Vanguard US. Since they have global stock and bond funds running somewhere in the world, why don't they have them available everywhere they do business? It doesn't keep me up at night, but I still find it puzzling.
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Re: Vanguard Global Bond Index Portfolio (annuity)

Post by aj76er » Fri Sep 08, 2017 12:07 am

Interesting. 70/30 is the US/EXUS bond split found in the LifeStrategy and TR funds.

LifeStrategy Income would probably be a better choice here?

A true global bond fund (with market cap weights, as per above post) would make it trivial to hold William Sharpe's World Bond/Stock portfolio.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

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Re: Vanguard Global Bond Index Portfolio (annuity)

Post by pascalwager » Sat Sep 09, 2017 11:52 am

aj76er wrote:
Fri Sep 08, 2017 12:07 am
Interesting. 70/30 is the US/EXUS bond split found in the LifeStrategy and TR funds.

LifeStrategy Income would probably be a better choice here?

A true global bond fund (with market cap weights, as per above post) would make it trivial to hold William Sharpe's World Bond/Stock portfolio.
You would still need to determine the stock and bond index market values each quarter or so to determine the world market stock/bond ratio. And, if you wanted to change the stock/bond ratio to adjust risk, then you would still need to use the Sharpe methods.

But Sharpe would like nothing better than having Vanguard finally offer a world bond/stock market fund using the four existing total market funds (for lowest cost). And Vanguard, unlike the individual investor, could finally access the actual Barclays bond index market values.

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Re: Vanguard Global Bond Index Portfolio (annuity)

Post by TD2626 » Sat Sep 09, 2017 12:10 pm

pascalwager wrote:
Sat Sep 09, 2017 11:52 am
aj76er wrote:
Fri Sep 08, 2017 12:07 am
Interesting. 70/30 is the US/EXUS bond split found in the LifeStrategy and TR funds.

LifeStrategy Income would probably be a better choice here?

A true global bond fund (with market cap weights, as per above post) would make it trivial to hold William Sharpe's World Bond/Stock portfolio.
You would still need to determine the stock and bond index market values each quarter or so to determine the world market stock/bond ratio. And, if you wanted to change the stock/bond ratio to adjust risk, then you would still need to use the Sharpe methods.

But Sharpe would like nothing better than having Vanguard finally offer a world bond/stock market fund using the four existing total market funds (for lowest cost). And Vanguard, unlike the individual investor, could finally access the actual Barclays bond index market values.
In my opinion, a 70/30 global bond fund is a step in the right direction and may be useful to some, but in some regards it doesn't go far enough.

It would be nice if a true global bond fund was offered at cap weight.
It would also be nice if a fund was offered that provided the market portfolio - cap weight in Total World stocks and bonds.

Maybe two "market portfolio" funds could be offered - one with global world cap weight in stocks/bonds and another "universal" portfolio that was global cap weight in stocks/bonds/commodities/real estate/other alternatives. The universal fund would have a higher expense ratio but would provide exposure to virtually every possible investment.

Investors could possibly use this as a "core" fund and add tilts toward home country, stocks, small-value, etc based on needs and preferences.

Essentially, in my opinion if an investor needs to tilt away from global cap weight a simple thing to do would be to get a (currently hypothetical) universal market portfolio fund and add desired tilts.

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siamond
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Re: Vanguard Global Bond Index Portfolio (annuity)

Post by siamond » Sat Sep 09, 2017 5:39 pm

TD2626 wrote:
Sat Sep 09, 2017 12:10 pm
In my opinion, a 70/30 global bond fund is a step in the right direction and may be useful to some, but in some regards it doesn't go far enough.

It would be nice if a true global bond fund was offered at cap weight.
It would also be nice if a fund was offered that provided the market portfolio - cap weight in Total World stocks and bonds.

Maybe two "market portfolio" funds could be offered - one with global world cap weight in stocks/bonds and another "universal" portfolio that was global cap weight in stocks/bonds/commodities/real estate/other alternatives. The universal fund would have a higher expense ratio but would provide exposure to virtually every possible investment.

Investors could possibly use this as a "core" fund and add tilts toward home country, stocks, small-value, etc based on needs and preferences.

Essentially, in my opinion if an investor needs to tilt away from global cap weight a simple thing to do would be to get a (currently hypothetical) universal market portfolio fund and add desired tilts.
The decision between % of stocks and bonds is a very personal decision, so I don't know that I would want the ultimate 'market portfolio' you described, but yes, it would be great if Vanguard could at least provide a true global bond fund (cap-weighted) and maybe a true global 'equity and equity-like' fund. And then yes, core+tilting would be the best approach.

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Re: Vanguard Global Bond Index Portfolio (annuity)

Post by abuss368 » Sat Sep 09, 2017 5:48 pm

I am seeing more and more international bond funds thoughts and posts. Perhaps investors are warming up to them and have become better educated about this asset class. Vanguard offering a low cost and diversified international bond index fund has probably contributed to this.
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siamond
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Re: Vanguard Global Bond Index Portfolio (annuity)

Post by siamond » Sat Sep 09, 2017 10:08 pm

Abuss, I'll contribute a blog entry on the topic of diversifying with International Bonds and more tomorrow. Stay tuned!

Back to my original question, it doesn't seem that anybody noticed a pattern of Vanguard using the annuity platform to make a test of a possible new fund, then... Oh well, I was just curious.

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TD2626
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Re: Vanguard Global Bond Index Portfolio (annuity)

Post by TD2626 » Sun Sep 10, 2017 3:34 pm

siamond wrote:
Sat Sep 09, 2017 5:39 pm
TD2626 wrote:
Sat Sep 09, 2017 12:10 pm
In my opinion, a 70/30 global bond fund is a step in the right direction and may be useful to some, but in some regards it doesn't go far enough.

It would be nice if a true global bond fund was offered at cap weight.
It would also be nice if a fund was offered that provided the market portfolio - cap weight in Total World stocks and bonds.

Maybe two "market portfolio" funds could be offered - one with global world cap weight in stocks/bonds and another "universal" portfolio that was global cap weight in stocks/bonds/commodities/real estate/other alternatives. The universal fund would have a higher expense ratio but would provide exposure to virtually every possible investment.

Investors could possibly use this as a "core" fund and add tilts toward home country, stocks, small-value, etc based on needs and preferences.

Essentially, in my opinion if an investor needs to tilt away from global cap weight a simple thing to do would be to get a (currently hypothetical) universal market portfolio fund and add desired tilts.
The decision between % of stocks and bonds is a very personal decision, so I don't know that I would want the ultimate 'market portfolio' you described, but yes, it would be great if Vanguard could at least provide a true global bond fund (cap-weighted) and maybe a true global 'equity and equity-like' fund. And then yes, core+tilting would be the best approach.
If there was a total universal market fund that maintained a globally cap-weighted allocation to everything in the world (stocks, bonds, alternatives, everything) at a very low expense ratio:

I think that a reasonable approach would be to hold that fund and tilt toward cash if the fund is too risky; and tilt towards stocks (using, say, TSM or Total World) if you have a higher willingness/ability/need to take risk.

More truly global options like this global bond fund are a step in that direction, though.

informal guide
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Re: Vanguard Global Bond Index Portfolio (annuity)

Post by informal guide » Wed Sep 13, 2017 10:22 am

aj76er wrote:
Fri Sep 08, 2017 12:07 am
Interesting. 70/30 is the US/EXUS bond split found in the LifeStrategy and TR funds.

LifeStrategy Income would probably be a better choice here?

A true global bond fund (with market cap weights, as per above post) would make it trivial to hold William Sharpe's World Bond/Stock portfolio.
My guess is that the 70/30 split in the new annuity bond portfolio reflects Vanguard's viewpoint on the optimal bond mix for US investors, just as in the Life Strategy portfolios. With this portfolio and the new annuity total international portfolio It is good to see that Vanguard now offers annuity investors the three building blocks for a global passive portfolio -- total stock index. total international stock index, and global bond index.

Vanguard's approach in constructing its annuity global bond index portfolio is to use its annuity total bond market portfolio, along with its mutual fund total international bond index portfolio - - see this quote from the portfolio strategy and policy section of the annuity portfolio profile on vanguard.com:

The portfolio is currently able to employ this strategy by investing in one Vanguard mutual fund and one VVIF portfolio.

This is similar to how it manages its annuity total stock market index portfolio, as described in its strategy and policy section of that portfolio:

The portfolio invests all, or substantially all, of its assets in two Vanguard funds—Vanguard Variable Insurance Fund-Equity Index Portfolio and Vanguard Extended Market Index Fund

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