Vanguard to list Aussie ETFs, eyes fixed-interest products

The firm is targeting retail investors with three ETFs tracking small caps, large caps and high-yield shares. It also hopes the ASX will allow fixed-interest ETFs within a year.

US firm Vanguard is planning to launch three Australian exchange-traded funds (ETFs) to track specific segments of the domestic share market in response to investor appetite and demand.

Vanguard Investments Australia, a wholly owned subsidiary and specialist indexer, is launching one fund to track small caps, one for large caps and one to focus on high-yielding stocks as a sort of private, self-managed superannuation fund.

All three funds are for retail and institutional investors, although it is expected these offerings will appeal more to the retail segment.

The firm, which managed over A$82 billion ($86 billion) in index funds at the end of 2010, has applied for quotation for trading on the Australian Securities Exchange (ASX) at the end of next month.

The launch of the funds, which are not yet available for investment, comes as the appetite for ETFs continues to build among advisers and investors. This brings to seven the number of Vanguard ETFs trading on the ASX.

Joseph Brennan, Vanguard’s chief investment officer, notes that recently released Rainmaker data shows that index investments now represent 16.4% of Australian assets, from 10.3% five years ago.

Robin Bowerman, principal and head of market development for Vanguard Investments Australia, adds that the domestic ETF market has risen some 40% over the past two years.

He notes that Vanguard’s product philosophy is to offer broad, publicly traded index funds to begin with. “Then over time we build out into more specific offers as we understand what the market is looking for,” he adds. “We are seeing growth within the domestic equity class, which is why we are launching three new funds.

“Advisers are looking for the building blocks for portfolios and they are looking for the market to be segmented, albeit in a fairly broad, diversified way. We are responding to what they are looking for.”

Bowerman says Vanguard will not be launching products in niche sectors or even country-specific funds. But he does think there will be a role for fixed-interest ETFs.

“Currently the ASX rules preclude fixed-interest ETFs, but there has been a fair bit of discussion between the ASX and regulators to amend the rules to allow fixed-interest ETFs,” he points out.

“In a year or two we see that as being a really important category for advisers, because at the moment they can do the equity piece, but they need a fixed-income component to be able to build out portfolios.”

Vanguard launched its first ETFs in the Australian market in May 2009 and boasts four existing funds amounting to a total of $308 million and representing almost 6% of the overall Australian market.

These are Vanguard Australian Property Securities Index ETF to track the S&P/ASX300 A-Reit Index; Vanguard Australian Shares Index ETF to match returns of the S&P/ASX 300 Index; Vanguard US Total Market Shares Index ETF to track the MSCI US Broad Market Index; and Vanguard All World ex-US Shares Index, offering 2,200 stocks of companies in 47 countries via the FTSE All-World ex-US Index.

The Australian Shares Index ETF is the fifth largest ETF quoted for trading on the ASX and accounts for the majority of the firm’s A$308 million.

In Australia, Vanguard manages over $82 billion in index funds, while in the US, where the firm is one of the largest ETF providers, the figure stands at nearly $157 billion.

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