Vanguard today announced plans to change the benchmarks for three Vanguard Government Bond Index Funds, which will then be renamed Vanguard Treasury Index Funds.
Prospectus updates were filed with the U.S. Securities and Exchange Commission, proposing the changes to all share classes of the following funds:
Each fund will track a pure Treasury benchmark and will no longer hold government agency-issued securities (such as debt issuance from the Federal Home Loan Mortgage Corporation or Federal National Mortgage Association, known as Freddie Mac and Fannie Mae). While the fund names will change, their tickers will stay the same.
The benchmark changes will take place over several days in the fourth quarter of 2017 and are not expected to affect the funds’ expense ratios.
The agency-issued securities’ weighting within the government segment of each fund is relatively small and has declined steadily since the early 2000s. We expect this trend to continue.
Note: The chart depicts the share of U.S. Treasury and U.S. agency issues in the Bloomberg Barclays US Government Bond Index and highlights the declining portion of government-agency issues over time.
With the new pure Treasury benchmarks, the funds will offer investors a more risk-controlled way to express duration views. In addition, since Treasuries are more liquid than agency-issued securities, the ETF share classes of the funds could benefit by experiencing lower spreads.
New names and benchmarks
The affected funds, tickers, CUSIPs, and their proposed new names and benchmarks are shown below.
|Current Vanguard fund name||New Vanguard fund name||Share class||Ticker/CUSIP
|Current benchmark||New benchmark|
|Short-Term Government Bond Index||Short-Term Treasury Index||ETF||VGSH/
|Bloomberg Barclays US 1-3 Year Government Float Adjusted Index||Bloomberg Barclays US Treasury Bond 1-3 Year Term Float Adjusted Index|
|Intermediate-Term Government Bond Index||Intermediate-Term Treasury Index||ETF||VGIT/
|Bloomberg Barclays US 3-10 Year Government Float Adjusted Index||Bloomberg Barclays US Treasury Bond 3-10 Year Term Float Adjusted Index|
|Long-Term Government Bond Index||Long-Term Treasury Index||ETF||VGLT/
|Bloomberg Barclays US Long Government Float Adjusted Index||Bloomberg Barclays US Long Treasury Float Adjusted Index|
Vanguard believes the changes are in the best interests of fund shareholders. The fund’s advisor, Vanguard Fixed Income Group, expects to manage each fund’s transition in such a way that trading costs will be moderate. Capital gains distributions are not expected to occur as a result of the changes.
- All investing is subject to risk, including the possible loss of the money you invest.
- Bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer’s ability to make such payments will cause the price of that bond to decline.
- While U.S. Treasury or government agency securities provide substantial protection against credit risk, they do not protect investors against price changes due to changing interest rates. While the market values of government securities are not guaranteed and may fluctuate, these securities are guaranteed as to the timely payment of principal and interest.
- Vanguard ETF Shares are not redeemable with the issuing Fund other than invery large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.
- CGS identifiers have been provided by CUSIP Global Services, managed on behalf of the American Bankers Association by Standard & Poor’s Financial Services, LLC, and are not for use or dissemination in a manner that would serve as a substitute for any CUSIP service. The CUSIP Database, © 2017 American Bankers Association. “CUSIP” is a registered trademark of the American Bankers Association.