Vanguard Emerging Markets Government Bond Index Fund launches

By Toni Weeks

San Luis Obispo, Calif., May 15 - Vanguard Whitehall Funds has launched its new Vanguard Emerging Markets Government Bond Index Fund, according to an N-1A filing with the Securities and Exchange Commission.

The fund seeks to track the performance of the Barclays USD Emerging Markets Government RIC Capped index, which includes dollar-denominated bonds that have maturities longer than one year and were issued by governments, government agencies and government-owned corporations in emerging market countries.

The index includes roughly 540 government, agency and local authority bonds from 155 issuers and, when necessary, limits weightings of individual debt issuers to meet IRS diversification requirements. According to a previous press release, the top three country holdings as of Jan. 31 were Russia (13.8%), Brazil (10.6%) and Mexico (8.5%).

Joshua C. Barrickman and Yan Pu are the portfolio managers.

The fund was designed for investors seeking low-cost exposure to a sizable and growing portion of the international fixed-income universe and who are willing to accept the generally higher risk of emerging markets bonds relative to the aggregate international fixed-income markets.

"Our research shows that emerging markets bonds have presented low correlations with domestic and developed market bonds and have the potential to add value for certain risk-tolerant investors holding an otherwise broadly diversified portfolio," Vanguard chief executive officer Bill McNabb said in the release.

"Nevertheless, we do caution investors against simply investing on the basis of the higher yields offered by emerging markets bonds, as the higher yields are accompanied by higher risks, including greater volatility and higher correlation to equity markets, as well as political risk."

The fund offers ETF, investor, admiral and institutional shares. The Nasdaq ticker symbols are VWOB, VGOVX, VGAVX and VGIVX, respectively.

There is no sales load, but all shares other than ETF shares will incur a 0.75% purchase fee to help offset the higher transaction costs associated with buying emerging markets bonds. ETF shares will carry management expenses of 0.15% and total annual fund operating expenses of 0.35%. Investor and admiral shares are subject to management expenses of 0.3% and 0.15%, respectively, and total annual fund operating expenses are expected to be 0.5% for investor shares and 0.35% for admiral shares. Institutional shares will have management expenses of 0.1% and total annual fund operating expenses of 0.3%.

As noted before, the Vanguard Emerging Markets Government Bond Index Fund follows the early February announcement for Vanguard's first international fixed-income offering for U.S. investors, the Vanguard Total International Bond Index Fund.

Valley Forge, Pa.-based Vanguard Group, Inc. is the fund's investment adviser.

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