Vanguard’s new single-ticket global bond ETF

The latest offering gives Canadian investors access to over 15,000 fixed income securities at a management fee of 0.30%

Ruth Saldanha 29 January, 2020 | 1:59AM

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Last week, Vanguard Investments Canada listed a new single-ticket, low-cost global fixed income exchange-traded fund called the Vanguard Global Aggregate Bond Index ETF (VGAB).

The Canadian dollar hedged ETF seeks to track the Bloomberg Barclays Global Aggregate Float Adjusted Composite Index (CAD-hedged). The ETF is composed of two underlying Vanguard aggregate bond ETFs: the Vanguard U.S. Aggregate Bond Index ETF (CAD-hedged) (VBU) and the Vanguard Global ex-U.S. Aggregate Bond Index ETF (CAD-hedged) (VBG). This new ETF will be sub-advised by Vanguard's Fixed Income Group. It has a management fee of 0.30%.

"Two of the largest trends in the Canadian ETF space are high-quality fixed income portfolios and single ticket solutions. This ETF offers advisors and investors both, with sound portfolio construction, ease of use and a low cost," said Scott Johnston, Head of Product, Vanguard Investments Canada.

In 2018, Vanguard launched the first three of its single ticket asset allocation ETFs in Canada. It subsequently added two more. The five asset-allocation ETFs together have over $2.5 billion in assets. Johnson expects similar things from the new ETF and added that through it, Canadian investors can access a broad global universe of over 15,000 fixed income securities in one fund. The fund uses derivative instruments to seek to hedge the foreign currency exposure of the securities included in the index to the Canadian dollar.

The new ETF is rebalanced daily. Currently, 47% of the fund’s assets are U.S. based, while the rest is global. At 30 basis points, the product is more expensive than some of Vanguard’s other products. For example, similar asset allocation ETFs have fees of 0.22%.

However, Johnson explains that though the product has some similarities to Vanguard’s popular asset allocation ETFs – in that it is a single ticket, low-cost product – it isn’t the sixth of the asset allocation ETFs.

“Through this product, investors get access to global investment-grade fixed-income assets. It is more complex, and has both scale and superior management expertise, while still being competitively priced as compared to more actively managed products, which could cost a lot more,” he says.

"In today's low-yield environment, cost matters more than ever. This is particularly true of bonds, where below-average yields mean that cost is making up an increasingly larger share of investor returns. A well-diversified and low-cost global fixed income solution can help limit home bias and give investors the best chance for investment success," Johnston added.

For investors who care about environmental, social and governance-related issues, Johnson says that Vanguard bakes in ESG considerations into all its fixed income investments. “The product doesn’t exclude any securities based on environmental, social or governance criteria, but all our investments have ESG considerations embedded into them, and this one is no different,” he explains.

The Vanguard Group Inc. is one of the world's largest fixed income managers with over US$1 trillion in global assets. The ETF brings the total number of Vanguard ETFs in Canada to 40, with $25 billion in ETF assets under management.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Vanguard Global Aggregate Bond ETF CADH25.39 CAD0.20
Vanguard Global ex-US Aggt Bd ETF CAD-H27.86 CAD0.16
Vanguard US Aggregate Bond ETF CAD-H26.04 CAD0.23

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Ruth Saldanha

Ruth Saldanha  Ruth Saldanha is Senior Editor at Morningstar.ca