A Vanguard press release said the offering is in response to its recognition that institutions need low-cost solutions to reduce defined benefit plan funding volatility. 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.
“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, in the release. “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.”
The new fund will be managed by Vanguard Fixed Income Group and will offer three share classes:
- Institutional – minimum initial investment of $5 million and expense ratio of 0.11%
- Institutional Plus – minimum initial investment of $100 million and expense ratio of 0.08%
- Extended Duration Treasury ETF – no minimum initial investment and expense ratio of 0.14%
Long-duration bonds can help reduce pension volatility by more closely aligning the duration of assets with that of pension obligations, Vanguard pointed out in the release. The firm expects the Institutional and Institutional Plus Shares to appeal to large plan sponsors, while the ETF Shares can enable financial advisers who oversee smaller defined benefit plans to implement a low-cost, long-duration bond strategy on behalf of their clients.
More information can be found at www.vanguard.com .