Vanguard Total International Bond Index Fund tax distributions
|Vanguard Fund Info|
|Total International Bond|
The Vanguard International Bond Index Fund is a questionable candidate for placement in taxable accounts. The fund is often recommended for the following purposes:
- As a vehicle for investors seeking a currency hedged international bond index fundl
- As a fixed income component of an investment portfolio. For example, the fund can be used as the fixed income component of the Vanguard four fund portfolio.
The table below summarizes the fund's relation to a number of tax factors.
|Favorable tax factors||Unfavorable tax factors||Fig. 1 |
Vanguard four-fund portfolio
Historical gains distributions : None
Dividends: Taxable at marginal tax rates
|Vanguard funds: distributions|
The following table provides a view of the fund's historical distributions expressed in terms of yields. The fund has possessed loss carryovers since its initial year of operation. This loss reserve has allowed the fund to not distribute a capital gain. The fund also possesses an ETF share class which can help moderate future taxable gains realizations as long as the ETF has sufficient institutional redemption.[notes 1]
|Year||Dividend Investor shares
|Short-term Capital Gains
|Long-term Capital Gains
|Foreign tax credit
|Total Return Investor|
The accounting figures and associated ratios (tables 3 and 4) can help one visualize some of the major determinants of a fund’s tendency to distribute taxable gains. These determining features include:
Turnover: The rate at which a fund manager sells securities within the fund has a major effect on potential gains realization. Bond funds have higher turnover ratios than stock funds, since the bond manager must buy and sell bonds as they mature, and as the manager maintains the maturity and duration structure of the portfolio. The gains or losses on a bond are primarily determined by changes in interest rates, and in some instances, credit quality.
Similarly, fund shareholders' sales flows have major effects on a fund’s distribution tendencies. Net flows into the fund have the following effects:
- Constant inflows allow a fund manager to purchase a wide range of bonds at different prices. The manager can select high basis securities when forced to sell a bond (this may realize a loss). The manager can also select low basis securities when redeeming a bond in-kind (a non-taxable transaction that can remove an unrealized gain out of the portfolio.)
- A large and growing net asset base serves to diffuse any realized capital gains across a large base of shareholders and reduces the per share gain distribution. Large outflows have the opposite effect; any gains realized are spread across a smaller asset base and result in higher per share distributed gains. 
The level of unrealized gains and carryover realized losses in a fund: A fund which defers gains realization accumulates unrealized appreciation, which when distributed, will be taxed; thus the unrealized gain/loss figure shows the potential gain (or loss) that would be realized if the portfolio was to be entirely liquidated. Any loss carryovers a fund possesses can be used to offset future realized gains. The third tab on the Table 3. spreadsheet shows the data in percentage of total assets form. The fourth tab provides per share distribution data.
Vanguard International Bond Index Fund has a moderate internal turnover rate. Shareholder turnover, on average, has suggested a holding period of roughly three years.
- One should also note that Vanguard includes share class conversions (mutual shares/ETF) and (investor shares/admiral) in the sales and redemptions totals for the fund. Vanguard does not quantify conversions. These non-transaction conversions inflate the reported mutual fund shareholder ratios. The fund has experienced growth in ETF shares.
Chart: ETF ratio to total fund assets
google drive spreadsheet
- The foreign tax credit is estimated from annual reports, and the N-CEN and EDGAR NSAR reports by:
- Dividing the foreign tax paid by the average net assets of the fund.
Table. Foreign Tax Credit
(View Google Spreadsheet in browser, then File --> Download as to download the file.)
- Dividend data is derived from the Complete filings: N-CSR
- Capital Gains are derived from annual reports, and are calculated by dividing the dollar amount capital gain distribution by the average net assets of the fund, derived from NSAR reports
- Larry E. Swedroe, What Wall Street Doesn’t Want You To Know, 2001, pp.227-28. ISBN 0312335725
- Current fund distributions:Vanguard