VALLEY FORGE, PA (April 4, 2019)—Vanguard today filed a preliminary registration statement with the Securities and Exchange Commission for Vanguard Commodity Strategy Fund. The new actively-managed fund, which is expected to launch in June 2019, will offer investors added portfolio diversification, along with a potential hedge against inflation risk by investing primarily in commodities and treasury inflation protected securities (TIPS).
“The Commodity Strategy Fund will be a low-cost, broad-based option for advisors and institutional investors seeking additional diversification and inflation protection for a well-balanced portfolio,” said Matt Brancato, head of Vanguard’s Portfolio Review Department. “We believe the commodity exposure can serve as an effective inflation hedge and also provide value in mitigating stock and bond risks.”
Vanguard’s new fund will bring a low-cost entrant to the commodity category, which has an average expense ratio of 1.25%.1 The fund will solely offer Admiral Shares at a $50,000 investment minimum, with an estimated expense ratio of 0.20%—less than a sixth of the cost of competing broad-based commodity-linked funds.
Actively managed by Vanguard’s experienced investment teams
Vanguard Commodity Strategy Fund will seek to outperform the Bloomberg Commodity Total Return Index by investing in commodity-linked derivative investments, such as commodity futures and swaps, collateralized by a mix of Treasury bills (T-bills) and short-term TIPS, which add an additional layer of inflation protection.
Vanguard’s Quantitative Equity and Fixed Income Groups will serve as the fund’s advisors, bringing their deep experience and expertise to the management of the fund. Vanguard’s Quantitative Equity team, comprising 35 strategists, analysts, and portfolio managers, has managed Vanguard Managed Payout Fund’s commodity strategy for more than 10 years. At launch, the $1.8 billion Vanguard Managed Payout Fund will reallocate its commodities exposure, consisting of $135 million, to the new fund, and will ultimately benefit from the added inflation protection.2 Vanguard’s Fixed Income Group, with more than 175 investment professionals, oversees more than $1.2 trillion in assets, and manages one of the largest TIPS funds, Vanguard Short-Term Inflation-Protected Securities Fund with $27.8 billion in assets. The two teams oversee portions of the $316 million Vanguard Alternative Strategies Fund, as well.
Commodities: Rewards and risks
Commodity-linked investments can be appealing for investors seeking a hedge against inflation, especially as inflation shocks have been historically volatile and hard to predict. Additionally, commodities can offer diversification benefits to a balanced portfolio, as their returns tend to move independently from those of equities and bonds. However, there can be considerable risks with commodities, including episodic boom-bust cycles, high volatility, and low returns over long periods.
Expanding active capabilities and offerings
As one of the largest providers of low-cost actively-managed funds in the world, Vanguard has developed the firm’s active capabilities and product roster considerably over the past three years.
- Vanguard’s Fixed Income Group continues to build out the breadth and depth of their investment teams, including hiring new portfolio managers, research leads, analysts, and traders. In particular, the Group has expanded its active emerging markets and high-yield capabilities.
- In early 2018, Vanguard launched six new factor-based ETFs and one factor-based mutual fund that seek to achieve specific risk or return objectives through targeted factor exposures. Managed by the firm’s Quantitative Equity Group and launched in 2018, the funds hold $277.4 million in combined assets.
- Late last year, Vanguard expanded its offering for investors seeking diversified exposure to the U.S. and international investment-grade credit markets with the introduction of Vanguard Global Credit Bond Fund.
- Most recently, Vanguard filed for the firm’s first actively-managed ESG fund. The new environmental, social, and governance-focused fund will complement Vanguard’s existing ESG lineup, while providing an actively-managed option for investors at the low cost of 0.45%.
Today, Vanguard manages more than $1.3 trillion in actively managed assets in more than 70 products. As of December 31, 2018, 80% of Vanguard’s active funds outperformed their peer averages over 3 years, 91% outperformed over a 5-year period, and 83% outperformed over a 10-year period.3
Vanguard is one of the world’s largest investment management companies. As of February 28, 2018, Vanguard managed $5.3 trillion in global assets. The firm, headquartered in Valley Forge, Pennsylvania, offers 415 funds to its more than 20 million investors worldwide. For more information, visit vanguard.com.
1 Source: Morningstar, 2018 data.
2 Source: Vanguard, data as of February 28, 2019.
3 For the three-year period, 9 of 9 Vanguard money market funds, 40 of 48 bond funds, 7 of 7 balanced funds, and 30 of 44 stock funds, or 86 of 108 Vanguard funds outperformed their peer group averages. For the five-year period, 9 of 9 Vanguard money market funds, 40 of 44 bond funds, 6 of 6 balanced funds, and 39 of 44 stock funds, or 94 of 103 Vanguard funds outperformed their peer group averages. For the ten-year period, 9 of 9 Vanguard money market funds, 32 of 44 bond funds, 6 of 6 balanced funds, and 35 of 40 stock funds, or 82 of 99 Vanguard funds outperformed their peer group averages. Results will vary for other time periods. (Source: Lipper, a Thomson Reuters Company, as of December 31, 2018)
A registration statement relating to Vanguard Commodity Strategy Fund has been filed with the Securities and Exchange Commission but has not yet become effective. Shares of Vanguard Commodity Strategy Fund 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, Vanguard Commodity Strategy Fund 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. Information contained in the preliminary prospectus for Vanguard Commodity Strategy Fund is subject to completion or amendment.
For more information about Vanguard funds, visit advisors.vanguard.com or call 800-997-2798 to obtain a prospectus or, if available, a summary 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. Copies of the final prospectus can be obtained from Vanguard. Please note that information in a preliminary prospectus is subject to completion or amendment.
- All investing is subject to risk, including the possible loss of the money you invest.
- Investments in derivatives may involve risks different from, and possibly greater than, those of investments in the underlying securities or assets.
- Although inflation-indexed bonds seek to provide inflation protection, their prices may decline when interest rates rise and vice versa.
- The Fund could lose all, or substantially all, of its investments in instruments linked to the returns of commodity futures or other commodity investments. Commodity futures trading is volatile, and even a small movement in market prices could cause large losses.
- CFA® is a registered trademark owned by CFA Institute.
- All asset figures are as of February 28, 2019, unless otherwise noted.
Vanguard Marketing Corporation, Distributor of the Vanguard Funds.