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Rating:Vanguard Taps in to Non-U.S. Real Estate Not Rated 2.0 Email Routing List Email & Route  Print Print
Monday, November 01, 2010

Vanguard Taps in to Non-U.S. Real Estate

Reported by Neil Anderson, Managing Editor

Vanguard [see profile] just unveiled its newest mutual fund. Today the Valley Forge, Pennsylvania-based mutual fund firm launched the Vanguard Global ex-U.S. Real Estate Index Fund.

"With international real estate securities representing a growing portion of the overall real estate market, a counterpart to our domestic REIT Index Fund is a natural addition to our index fund lineup," stated Gus Sauter, Vanguard's chief investment officer.

Vanguard principal and 18-year company veteran Gerard O'Reilly manages the new fund. It comes in four different share classes: Investor shares for 50 basis points, Institutional shares for 30 bps, Signal shares for 35 bps and ETF shares for 35 bps.

Company Press Release

VALLEY FORGE, PA, November 1, 2010—To further round out its index fund and ETF offerings across multiple asset classes, Vanguard today introduced a new international real estate index fund with ETF Shares based on the S&P Global ex-U.S. Property Index. The fund will invest in real estate investment trusts (REITs) and real estate operating companies (REOCs) in emerging markets and developed markets outside the United States. The new fund and ETF will complement the Vanguard REIT Index Fund, which holds domestic real estate securities.

Vanguard Global ex-U.S. Real Estate Index Fund will offer four low-cost share classes: Investor Shares (with an estimated expense ratio of 0.50%); Institutional Shares (0.30%); Signal Shares (0.35%); and ETF Shares, ticker symbol VNQI (0.35%). On average, international real estate mutual funds have an asset-weighted expense ratio of 1.31% (source: Lipper Inc., 9/30/2010); competing international real estate ETFs have an average expense ratio of 0.54% (source: Morningstar, 9/30/2010).

“Modest exposure to real estate investments in a broadly diversified investment portfolio can help moderate overall portfolio volatility and serve as a hedge against inflation,” said Vanguard’s chief investment officer Gus Sauter. “With international real estate securities representing a growing portion of the overall real estate market, a counterpart to our domestic REIT Index Fund is a natural addition to our index fund lineup.”

The $14.5 billion Vanguard REIT Index Fund was launched in 1996, and ETF Shares of the fund (ticker symbol VNQ) began trading in 2004. Vanguard REIT ETF garners about 65% of all money flowing to real estate ETFs (source: Bloomberg, 9/30/2010). Domestic assets represent only 30% of the global real estate market; overseas assets represent 70%. Investors wishing to hold a market-weighted global real estate portfolio could invest in the two funds proportionally.

Vanguard Global ex-U.S. Real Estate Index Fund will attempt to replicate the S&P Global ex-U.S. Property Index, a free-float-adjusted, market-capitalization-weighted index that measures the equity market performance of 425 international real estate securities from 35 developed and emerging markets.

The minimum initial investment requirement is $3,000 for Investor Shares. Institutional Shares and Signal Shares will be available for eligible institutional investors, and ETF Shares may be purchased through a broker such as Vanguard Brokerage Services.

Vanguard will assess purchase and redemption fees of 0.25% on non-ETF shares to defray the transaction costs and taxes associated with buying and selling foreign real estate securities.

REITs and REOCs are companies that purchase office buildings, hotels, and other real estate property. These securities offer investors an alternative to direct ownership of real estate properties. Since REITs and REOCs often perform differently than the overall equity and fixed income markets, they may offer some diversification to a portfolio already made up of stock and bond funds.

About Vanguard

Vanguard, headquartered in Valley Forge, Pennsylvania, is one of the world’s largest investment management companies and a leading provider of company-sponsored retirement plan services. Vanguard manages nearly $1.5 trillion in U.S. mutual fund assets. Vanguard offers more than 170 funds to U.S. investors and more than 60 additional funds in non-U.S. markets.

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There are other material differences between funds that must be considered prior to investing.

Vanguard ETF Shares are not redeemable with an Applicant Fund other than in Creation Unit aggregations. Instead, investors must buy or sell Vanguard ETF Shares in the secondary market with the assistance of a stockbroker. In doing so, the investor will incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.

All mutual funds and ETFs are subject to risk, which may result in the loss of principal. International ETFs involve additional risks, including currency fluctuations and political uncertainty. ETF products that invest in emerging markets are generally more risky than those that invest in developed countries because countries with emerging markets may have relatively unstable and less established markets and economies. Sector ETFs are subject to sector risks and nondiversification risks, which may result in performance fluctuations that are more extreme than fluctuations in the overall stock market. In addition, sector ETFs that sample their target indexes to comply with tax diversification rules may experience a greater degree of tracking error than other ETFs. Diversification does not ensure a profit or protect against a loss in a declining market.

For more information about Vanguard funds, visit www.vanguard.com, or call 800-662-7447, to obtain a prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.

Vanguard Brokerage Services is a division of Vanguard Marketing Corporation, Member FINRA.

All asset figures are as of September 30, 2010, unless otherwise noted.

Vanguard Marketing Corporation, Distributor. 

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