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Rating:Vanguard Files Registration for Long-term Bond Fund Not Rated 2.8 Email Routing List Email & Route  Print Print
Monday, June 25, 2007

Vanguard Files Registration for Long-term Bond Fund

News summary by MFWire's editors

Vanguard has filed a registration statement with the Securities and Exchange Commission to offer a long-duration bond fund. The Vanguard Extended Duration Treasury Index Fund will seek to match the performance of the Lehman Brothers Treasury STRIPS 20-25 Year Equal Par Bond Index, and will have a duration ranging from 20 to 25 years. The fund will offer three share classes.


Recognizing the need for a low-cost solution to help institutions reduce volatility in their defined benefit plan funding, Vanguard has filed a registration statement with the Securities and Exchange Commission to offer a long-duration bond fund. The Vanguard® Extended Duration Treasury Index Fund will seek to match the performance of the Lehman Brothers Treasury STRIPS 20-25 Year Equal Par Bond Index, and will have a duration ranging from 20 to 25 years. The new fund will be managed by Vanguard Fixed Income Group, which oversees $336 billion in assets, including $82 billion in bond index fund assets.

“We have witnessed a sea change in how our clients are managing defined benefit plans as a result of the Pension Protection Act of 2006,” said Vanguard Chairman and CEO John J. Brennan. “Long-duration bond portfolios can be an important part of an overall solution for pension plans seeking to balance their portfolio risk to pension liabilities.”

New accounting and pension funding regulations encourage institutions to manage volatility in their pension plans more closely to reduce the risk of financial statement impact and having to make large contributions. Increasingly, plan sponsors have focused on liability-sensitive investing, which typically includes a long-duration bond investment within the overall portfolio. Long-duration bonds can help to reduce pension volatility by more closely aligning the duration of assets with that of pension obligations.

Vanguard expects the Institutional and Institutional Plus Shares of the new fund to appeal to large plan sponsors, while the ETF Shares can enable financial advisors, who oversee smaller defined benefit plans, to implement a low-cost, long-duration bond strategy on behalf of their clients.

Vanguard, which has managed defined benefit plan assets for three decades, has developed a sophisticated approach to assist institutions with the development of liability-sensitive investment strategies. Vanguard uses an economic model and Monte Carlo simulations to generate thousands of asset-liability scenarios, which are customized based on client input, client objectives, and Vanguard forecasts. This approach compares alternative portfolios based on the probability of successfully meeting client objectives, and frames the results in a way that is clear and readily acted upon.

In addition, following the passage of the pension protection act, Vanguard launched an online Pension Reform Resource Center, providing research and commentary to help sponsors of defined contribution and defined benefit plans respond to pension reform. The center is at www.vanguard.com/pensionresource.

The Vanguard Group, headquartered in Valley Forge, Pennsylvania, is one of the nation’s largest mutual fund firms and a leading provider of company-sponsored retirement plan services. Vanguard manages more than $1.24 trillion in U.S. mutual fund assets, including more than $325 billion in employer-sponsored retirement plans, and $30 billion in exchange-traded funds. Vanguard offers more than 140 funds to U.S. investors and more than 40 additional funds in foreign markets.

All asset figures are as of May 31, 2007, unless otherwise noted.

A registration statement relating to the Vanguard Extended Duration Treasury Index Fund shares has been filed with the Securities and Exchange Commission but has not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This communication shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, these securities in any state in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state. Copies of the Vanguard Extended Duration Treasury Index Fund prospectus and ETF product brochure, as well as prospectuses for all other Vanguard funds and ETFs can be obtained by calling 800-523-1036. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in these documents; read and consider them carefully before investing. Please note that a preliminary prospectus is subject to change.

All mutual funds and ETF products are subject to stock market risk, which may result in the loss of principal. Investments in treasury bond funds and ETFs are subject to interest rate and inflation risk. Diversification does not ensure a profit or protect against a loss in a declining market.

Vanguard ETF Shares can be bought and sold only through a broker (who will charge a commission) and cannot be redeemed with the issuing fund. The market price of Vanguard ETF Shares may be more or less than net asset value.

Vanguard Extended Duration Treasury ETF is not sponsored, endorsed, sold or promoted by Lehman Brothers. Lehman Brothers makes no representation or warranty, express or implied, to the owners of Vanguard Extended Duration Treasury ETF or any member of the public regarding the advisability of investing in securities generally or in Vanguard Extended Duration Treasury ETF particularly or the ability of the Lehman Brothers Index to track general bond market performance.

Lehman Brothers hereby expressly disclaims all warranties of merchantability and fitness for a particular purpose with respect to the Lehman index and any data included therein. Lehman’s only relationship to Vanguard and Vanguard Extended Duration Treasury ETF is the licensing of the Lehman index, which is determined, composed, and calculated by Lehman without regard to Vanguard or the Vanguard Extended Duration Treasury ETF. Lehman is not responsible for and has not participated in the determination of the timing of, prices at, or quantities of Vanguard Extended Duration Treasury ETF to be issued.

The Fund is subject to interest rate risk, which is the chance that bond prices overall will decline because of rising interest rates. Interest rate risk is expected to be extremely high for the Fund because it invests mainly in zero coupon long-term bonds, which have prices that are very sensitive to interest rate changes. Because the Fund invests mainly in Treasury STRIPS with maturities ranging from 20 to 25 years, rising interest rates may cause the value of the Fund's investments to decline significantly.

Vanguard and Vanguard ETFs are trademarks of The Vanguard Group, Inc. All other marks are the exclusive property of their respective owners.

Vanguard Marketing Corporation, Distributor. 

Edited by: Erin Kello


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