Everybody loves indexing, and indexing pioneer Vanguard certainly doesn't shut their yap about the benefits of indexing, but for some strange reason Vanguard has yet to deliver a global stock index fund. Vanguard offers dozens of index funds - now in ETF format as well as traditional open-end funds - to cover U.S. stocks and foreign markets, but they don't have a one stop product that lets a truly passive investor buy a single stock fund that invests in world equity markets.
Vanguard filed a registration statement on Wednesday, April 2, 2008, with the U.S. Securities and Exchange Commission (SEC) to offer a global equity index fund—Vanguard Global Stock Index Fund. The fund will offer three share classes—Investor, Institutional, and ETFs—that are expected to be available in the second quarter of 2008. This will be Vanguard's first passively managed global index fund.
The new fund will seek to track the performance of the FTSE All-World Index, a float-adjusted, market capitalization-weighted index designed to measure equity market performance of large- and mid-capitalization stocks worldwide. The fund will invest in a broadly diversified sampling of securities from the target benchmark, which comprises more than 2,800 large- and mid-cap stocks of companies in 48 foreign countries. Approximately 55% of the index is made up of stocks from outside the U.S."
The index fund open-end version's 0.45% expense ratio is not as cheap as other Vanguard U.S. index funds, and is just 0.19% cheaper than Vanguards actively managed global stock fund, Vanguard Global Equity (VHGEX).
Vanguard is also adding purchase fees to buy the open-end version of this new index fund, along with the usual redemption fees:
To offset the transaction costs associated with global investing and to protect the interests of long-term fund shareholders, the fund will assess a 0.15% purchase fee on all non-ETF share purchases and a 2% redemption fee on all non-ETF assets redeemed within two months of purchase."
This front and back fee levy should lead to slightly better quoted performance of the open-end fund than the closed end fund, even factoring in higher fund expenses (the ETF costs 0.25%).
Vanguard is really just playing catch-up here. Barclays iShares unit just launched a global stock ETF, iShares MSCI ACWI Index Fund (ACWI), which started just last week. Barclay's fund owns 711 holdings to mimic an index of 2,884 stocks and comes with an 0.35% expense ratio - more than the Vanguard ETF but less than the Vanguard open-end fund.
Global indexing made more sense before foreign stocks outpaced U.S. stocks, as they have for the past several years. At this point we expect U.S. stocks to beat foreign stocks going forward. Our predictions aside, for those looking for a one stop stock fund they can buy and ignore for twenty years, this is it. No word on where the one stop global stock AND bond index fund is - we need that even more, especially in 401(k) plans.
New Vanguard Global Index Fund - It's About Time
Everybody loves indexing, and indexing pioneer Vanguard certainly doesn't shut their yap about the benefits of indexing, but for some strange reason Vanguard has yet to deliver a global stock index fund. Vanguard offers dozens of index funds - now in ETF format as well as traditional open-end funds - to cover U.S. stocks and foreign markets, but they don't have a one stop product that lets a truly passive investor buy a single stock fund that invests in world equity markets.
Well, soon they will:
Vanguard filed a registration statement on Wednesday, April 2, 2008, with the U.S. Securities and Exchange Commission (SEC) to offer a global equity index fund—Vanguard Global Stock Index Fund. The fund will offer three share classes—Investor, Institutional, and ETFs—that are expected to be available in the second quarter of 2008. This will be Vanguard's first passively managed global index fund.
The new fund will seek to track the performance of the FTSE All-World Index, a float-adjusted, market capitalization-weighted index designed to measure equity market performance of large- and mid-capitalization stocks worldwide. The fund will invest in a broadly diversified sampling of securities from the target benchmark, which comprises more than 2,800 large- and mid-cap stocks of companies in 48 foreign countries. Approximately 55% of the index is made up of stocks from outside the U.S."
The index fund open-end version's 0.45% expense ratio is not as cheap as other Vanguard U.S. index funds, and is just 0.19% cheaper than Vanguards actively managed global stock fund, Vanguard Global Equity (VHGEX).
Vanguard is also adding purchase fees to buy the open-end version of this new index fund, along with the usual redemption fees:
To offset the transaction costs associated with global investing and to protect the interests of long-term fund shareholders, the fund will assess a 0.15% purchase fee on all non-ETF share purchases and a 2% redemption fee on all non-ETF assets redeemed within two months of purchase."
This front and back fee levy should lead to slightly better quoted performance of the open-end fund than the closed end fund, even factoring in higher fund expenses (the ETF costs 0.25%).
Vanguard is really just playing catch-up here. Barclays iShares unit just launched a global stock ETF, iShares MSCI ACWI Index Fund (ACWI), which started just last week. Barclay's fund owns 711 holdings to mimic an index of 2,884 stocks and comes with an 0.35% expense ratio - more than the Vanguard ETF but less than the Vanguard open-end fund.
Global indexing made more sense before foreign stocks outpaced U.S. stocks, as they have for the past several years. At this point we expect U.S. stocks to beat foreign stocks going forward. Our predictions aside, for those looking for a one stop stock fund they can buy and ignore for twenty years, this is it. No word on where the one stop global stock AND bond index fund is - we need that even more, especially in 401(k) plans.