Vanguard Unveils Short-Term TIPS ETF
Vanguard Unveils Short-Term TIPS ETF
October 17, 2012
Vanguard introduced the Vanguard Short-Term Inflation-Protected Securities Index Fund, which offers multiple mutual fund and ETF share classes.
The estimated expense ratios of the four share classes range from 0.07% to 0.20% (see table).
The new fund tracks the Barclays U.S. Treasury Inflation-Protected Securities (TIPS) 0-5 Year Index, a market-weighted index that measures the performance of inflation-protected public obligations of the U.S. Treasury that have a remaining maturity of less than five years. The benchmark index has an average duration of 2.71 years and an average maturity of 2.76 years.
“Vanguard believes TIPS can serve a valuable role in a well-balanced portfolio as an inflation hedge and diversifier. The Short-Term Inflation Protected Securities Index Fund was developed for investors seeking inflation protection with the potential for less volatility than other inflation hedges, including stocks, longer-term TIPS, gold, and REITs,” said Vanguard Chief Investment Officer Gus Sauter.
The Short-Term Inflation-Protected Securities ETF (NasdaqGM:VTIP) charges 0.10% annual expenses. To help defray the transaction costs of purchasing TIPS, the fund assesses a 0.25% purchase fee on all non-ETF shares.
According to Lipper, the Treasury inflation-protected securities fund and ETF categories have average expense ratios of 0.82% and 0.20%, respectively.
UBS Launches High Octane Mortgage ETN
UBS Investment Bank launched the ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN (NYSEArca: MORL) this week.
MORL is linked to the monthly compounded 2x leveraged performance of the Market Vectors Global Mortgage REITs. The note’s leverage ratio is reset monthly and it also offers 2x leveraged exposure to the underlying indexes’ yield. Based upon September 30 data, the 2x yield was 24.82%. Distributions occur monthly and the actual dividend yield is variable.
The mortgage REIT business model (NYSEARCA:REM) relies heavily on the “spread” or difference between the mortgage REIT’s short-term borrowing costs and the investment yield earned by it on its longer-termed investments. In general, wider spreads result in greater operating margins for mortgage REITs. Narrower spreads will generally compress margins and negatively affect mortgage REITs. Because mortgage REITs, like all REITs, must distribute at least 90% of their ordinary taxable income to investors, mortgage REITs have typically produced attractive historical yields.
ETNs are debt securities linked to the performance of a benchmark. Maturities of the notes generally range from 30-40 years and carry issuer credit risk.
MORL’s maturity date is October 16, 2042 and the note charges 0.40% in annual expenses.
EG Shares Launches Emerging Markets ETF
Emerging Global Advisors unveiled the EGShares Emerging Markets Core ETF (NYSEARCA:EMCR), which offers exposure to stocks in countries like China, Brazil, India, and South Africa.
The S&P Emerging Markets Core Index has less industry and mature economy concentration than conventional benchmarks such as the MSCI Emerging Markets Index and the FTSE Emerging Index.
The initial concept for the S&P Emerging Markets Core Index was conceived by Emerging Global Advisors. The Index, designed, calculated, published and maintained by S&P Dow Jones Indices, seeks to avoid the industry and mature economy concentrations of conventional benchmarks which result from their market-cap weighting approach, in addition to their inclusion of developed economy constituents.
The index uses an equal weighting strategy that’s modified by capping the exposure of each country to a 15% maximum.
EMCR has 108 holdings and a net annual expense ratio of 0.70%. The ETF currently does not use options, swaps or other derivatives in its portfolios.
New “Enhanced Money Market” ETF
Another new fund is the FlexShares Ready Access Variable Income Fund (NYSEARCA:RAVI) which began trading last week. The new ETF is actively managed and aims to preserve capital, keep high liquidity, and reach for enhanced returns. No yield information is currently available.
Currently, RAVI has just 18 holdings and the bulk of its country exposure is the U.S. The fund caps market exposure to asset backed securities (10%), single countries (25%), and emerging markets (20%). RAVI has an effective duration of 0.47 years and the net expense ratio is 0.25%.
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