Vanguard launches actively managed Commodity Strategy Fund

June 25, 2019

 

Vanguard today launched Vanguard Commodity Strategy Fund—its first actively managed stand-alone commodity futures fund, which seeks to provide broad commodities exposure and capital appreciation. The Commodity Strategy Fund is suitable for investors who want commodities exposure through an actively managed fund and will seek to serve investors as a portfolio diversifier and a hedge against inflation.

The fund (Ticker: VCMDX; CUSIP: 921939708) will invest in commodity-linked derivative investments, such as commodity futures and swaps, collateralized by 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 for inflation protection and enhanced returns over time without taking on excessive risk. 

"Commodities are a large and distinct asset class and have historically exhibited low correlation of returns to both equity and fixed income markets, and therefore may provide diversification benefits to a traditional portfolio of stocks and bonds," said Matt Brancato, principal and head of Vanguard Portfolio Review Group.

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% ($50,000 minimum initial investment). Competing broad-based commodity-linked funds have an average expense ratio of 1.24%.1

At launch, Vanguard Managed Payout Fund reallocated its commodities exposure, approximately $126.8 million as of May 31 to the new fund.

The fund's benchmark is the Bloomberg Commodity Total Return Index, a diverse and widely used commodity futures index. However, the fund will differ from its benchmark in two ways. First, the fund will seek to increase inflation protection by holding a portion of its collateral in short-term TIPS along with T-bills. Short-term TIPS offer a high degree of correlation with inflation over the short term, making them well-suited as a shorter-term inflation hedge. Second, rather than holding near-month futures contracts and rolling contracts over a five-day period, the fund will attempt to take advantage of liquidity premiums by holding contracts further from expiration and avoiding congested trading periods by trading over a longer time horizon during the monthly roll process.

About the advisors

Vanguard will serve as the fund's investment advisor through its Quantitative Equity Group (QEG) and its Fixed Income Group (FIG). QEG and FIG have a history of working together in overseeing some of Vanguard's portfolios, including portions of the $314.8 million (as of May 31, 2019) Vanguard Alternative Strategies Fund.

QEG brings 10 years of commodity investing experience managing the commodities allocation of the Vanguard Managed Payout Fund. As of March 31, QEG had $42.0 billion in assets under management in 47 mandates. FIG is one of the largest bond fund managers in the world, managing approximately $1.3 trillion in total assets (as of December 31, 2018), including several TIPS and Treasury bill portfolios. FIG is supported by a global team of more than 180 investment professionals, including 87 MBAs, 3 PhDs, and 87 CFA® charterholders. Vanguard's 90-person taxable-bond team manages more than $145 billion in 11 actively managed mutual fund strategies, as of March 31, 2019. Managing the fund are:

  • Josh Barrickman, CFA, a principal, a senior portfolio manager, and head of Fixed Income Indexing Americas.
  • Anatoly Shtekhman, CFA, a portfolio manager and senior investment strategist in QEG.
  • Fei Xu, CFA, a portfolio manager in QEG with a primary focus on research and portfolio management of factor-based and alternative strategies.

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

Notes:

  • 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 March 31, 2019, unless otherwise noted.
 

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