Vanguard Global Bd Idx EUR H Acc |
by Jose Garcia-Zarate
The global multisector nature of this index fund can make it work as the central fixed-income element in a portfolio. The strategy tracks an index with returns hedged to multiple currencies. The low ongoing charges levied by all share classes is a strong point in its favor. The fund offers significantly lower exposure to China than its passive competitors. This is because Vanguard made an active decision to slow down and eventually stop the process of inclusion of Chinese onshore debt approved by Bloomberg back in 2019. Vanguard argues that there remain issues that prevent access to China and specifically points to the ability to efficiently handle the hedging of CNY exposure. Other passive fund providers do not share this view and report no difficulty in transacting Chinese assets. This has translated into a significant divergence in China exposure between this fund and competitors tracking the standard Bloomberg Global Aggregate Bond Index. As of this review, the difference stands at around 9% to 1%. This can work for or against this strategy depending on the performance of Chinese bonds. Irrespective of differences in China exposure, the trade-off of adopting a passive approach to global bond exposure is the lack of flexibility in country, sector, and duration calls relative to active funds, which can substantially alter the portfolio distribution. This can also increase the chances of making mistakes over the long term, particularly in relation to the credit bucket. The steady approach of an index fund may help to iron these out; not least considering the substantial price advantage. But overall, an index-tracking approach to the global aggregate bond market remains something of a blunt investment proposal. It is good enough for uncomplicated beta but leaves room to add value. Overall, this index strategy has points in its favor, most notably its low fees. Investors seeking a well-managed one-stop-shop fund for broad global bond market exposure and specifically eyeing limited exposure to China should find that this fund fits the bill. |
Morningstar Pillars | |
People | Above Average |
Parent | High |
Process | Average |
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