Vanguard files for actively managed commodity strategy fund

April 4, 2019

 

Vanguard filed a registration statement today with the U.S. Securities and Exchange Commission for the proposed Vanguard Commodity Strategy Fund. The standalone commodity fund will offer Admiral™ Shares and is targeted to launch in June 2019.

The actively managed Commodity Strategy Fund will rely on commodity-linked derivative investments to maximize inflation protection while seeking to outperform its benchmark and reduce the long-term volatility of a well-diversified, balanced portfolio. The fund's commodity-linked exposure will be collateralized with a mix of short-term Treasury Inflation-Protected Securities (TIPS) and U.S. Treasury bills. With its blend of commodity-linked futures and mix of short-term TIPS and Treasury bills, the fund is expected to offer a controlled approach that allows for the potential of inflation protection and enhanced returns over time without taking on excessive risk.  

"The Commodity Strategy Fund will be a low-cost, broad-based option for advisors and institutional investors seeking additional diversification and inflation protection for a well-balanced portfolio," said Matt Brancato, head of Vanguard Portfolio Review Department. "We believe the commodity exposure can serve as an effective inflation hedge and also diversify stock and bond risks." 

Consistent with Vanguard's long-term focus on driving down the cost of investing, the Commodity Strategy Fund's sole share class, Admiral Shares, will have an estimated expense ratio of 0.20%. Competing broad-based commodity-linked funds have an average expense ratio of 1.24%.1

Vanguard will serve as the fund's investment advisor through its Quantitative Equity Group (QEG) and Fixed Income Group (FIG). QEG brings 10 years of commodity investing experience managing the commodities allocation of the Vanguard Managed Payout Fund; FIG manages approximately $1.3 trillion in total assets, including several TIPS and Treasury bill portfolios. The fund seeks to provide broad commodities exposure and capital appreciation.

The fund will seek to outperform the Bloomberg Commodity Total Return Index, a diverse and widely used commodity futures index. However, its returns may deviate from that of its benchmark because of its active focus and investment in TIPS, along with other risks generally associated with investing.

At launch, the $1.8 billion Vanguard Managed Payout Fund is expected to reallocate its commodity exposure—approximately $135 million as of February 28—to the new fund. The change is not expected to significantly affect the Managed Payout Fund's investment strategy or policies or to increase its 0.34% expense ratio.2

About the advisors

QEG follows a fundamentally driven, disciplined process for selecting stocks with strong growth potential and attractive valuations. It seeks to capture excess return through a systematic, risk-controlled, cost-effective process. As of February 28, QEG had $42.3 billion in assets under management in 47 mandates.

FIG manages more than $1.3 trillion in active and passive fixed income strategies, with the support of a global team of more than 175 investment professionals, including 88 MBAs, 4 PhDs, and 83 CFA® charterholders. Vanguard's 90-person taxable-bond team manages more than $145 billion in 11 actively managed mutual fund strategies.

1 Lipper, a Thomson Reuters Company, as of September 30, 2018. Data are based on Lipper peer-group average expense ratios.

2 This expense ratio represents the fund's acquired fees and expenses based on those of the underlying funds as of the April 25, 2018, prospectus.

Notes:

  • A registration statement relating to Vanguard Commodity Strategy Fund has been filed with the Securities and Exchange Commission but has not yet become effective. Shares of Vanguard Commodity Strategy Fund may not be sold, nor may offers to buy be accepted, prior to the time the registration statement becomes effective. This communication shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, these securities in any state in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state. Information contained in the preliminary prospectus for Vanguard Commodity Strategy Fund is subject to completion or amendment.
  • For more information about Vanguard funds, visit advisors.vanguard.com or call 800-997-2798 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing. Copies of the final prospectus can be obtained from Vanguard. Please note that a preliminary prospectus is subject to change.
  • Investments in derivatives may involve risks different from, and possibly greater than, those of investments in the underlying securities or assets.
  • Although inflation-indexed bonds seek to provide inflation protection, their prices may decline when interest rates rise and vice versa.
  • All investing is subject to risk, including the possible loss of the money you invest.
  • The fund could lose all, or substantially all, of its investments in instruments linked to the returns of commodity futures or other commodity investments. Commodity futures trading is volatile, and even a small movement in market prices could cause large losses.
  • CFA® is a registered trademark owned by CFA Institute.
  • All asset figures are as of February 28, 2019, unless otherwise noted.
 

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