Vanguard Extends ETF Price War to TIPS
July 26th, 2012 at 10:30am by Tom Lydon
Vanguard, the third-largest U.S. exchange traded fund provider, has filed for a new low-cost, short-term inflation-protected securities index fund, fueling the ongoing so-called price war among fund providers.
According to a Securities and Exchange Commission filing, the Vanguard Short-Term Inflation-Protected Fund will will reflect the performance of the Barclays U.S. Treasury Inflation-Protected Securities (TIPS) 0-5 Year Index, which follows the investment return of inflation-protected public obligations of the U.S. Treasury with maturities of less than five years. The fund has an expense ratio of 0.10%.
The underlying index has an effective duration of 2.53 years and an average maturity of 2.59 years.
The new ETF is expected to start trading in the fourth quarter.
TIPS assets and related ETFs have been gaining traction as investors try to hedge growing inflationary concerns in light of the central bank’s loose monetary policies.
“The new Short-Term Inflation Protected Securities Index Fund will provide an additional choice for investors who are seeking protection from inflation,” Vanguard Chief Investment Officer Gus Sauter said in a press release. “The fund’s objective will be to generate returns more closely correlated with realized inflation and to offer investors the potential for less volatility of returns relative to a longer-duration TIPS fund.”
This additional choice will be directly competing with costlier alternatives, including the iShares Barclays 0-5 Year TIPS Bond Fund (NYSEArca: STIP) and the PIMCO 1-5 Year U.S. TIPS Index Fund (NYSEArca: STPZ), which both have a 0.20% expense ratio. [Will BlackRock Cut iShares ETF Fees?]
So far, the low-cost ETF options, such as those provided by Vanguard, are garnering greater market share. Vanguard ETFs have an average expense ratio of 0.17%, whereas the industry average is around 0.55%.
In the first six months, Vanguard has gathered $29.6 billion in assets, compared to $16.2 billion from BlackRock‘s iShares and $10.3 billion from State Street Global Advisors. BlackRock CEO Larry Fink has already acknowledged that Vanguard has “taken market share from BlackRock in the U.S. core type of equity products.” [BlackRock’s iShares ETFs ‘In the Middle of a Price War’]
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Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.