With BlackRock’s (NYSE:BLK) iShares unit scheduled to lower operating expenses on its ETFs in an effort to re-engage in the market-share battle that Vanguard is currently winning, I’m wondering where Vanguard’s response — the bond funds (and ETFs) that will compete with existing iShares offerings — are hiding.
Over the past couple of years Vanguard has filed papers with the SEC to announce a half-dozen new bond index funds and ETFs and … well, investors are still waiting.
Let’s start with the three municipal bond index funds (and ETFs) that Vanguard filed papers on in June 2010. All systems were “go” until analyst Meredith Whitney threw cold water on the muni market with a pronouncement that billions of dollars in bonds were headed for almost immediate default.
Investors panicked and began pulling money from muni funds. Vanguard pulled back its indexing aspirations, saying it couldn’t launch funds into a flood of outflows. However, muni bond leader Chris Alwine did tell Investment News that, “We would like to see some stabilization in outflows and preferably inflows into municipal bond funds before launching the funds.”
Well, the panic ended long ago. In fact, within a month of Vanguard’s delay cash came flowing back. Not only did it flow back into Vanguard’s funds, it flowed into funds across the industry.
The chart shows net outflows and inflows for all of Vanguard’s national municipal bond funds and also breaks out the flows for just Limited-Term Tax-Exempt (MUTF:VMLTX), Intermediate-Term Tax-Exempt (MUTF:VWITX), and Long-Term Tax-Exempt (MUTF:VWLTX) which about match the three indexes that Vanguard proposed using for its new funds.
I wonder what Vanguard’s waiting for now.
Next up are the foreign bond index funds which Vanguard announced at the end of Oct. 2011. Vanguard’s research department issued a paper and shorter “educational” materials citing foreign bonds’ ability to damp volatility in fixed-income portfolios.
But in January Vanguard said it was delaying the launch because of “operational” issues and expected the funds would be available “late in 2012.” We’re there now. I would expect to hear yes, or no shortly.
Finally, there’s Short-Term Inflation-Protected Index (MUTF:VIPSX). We may still be on track here as the July 24 filing suggested an Oct. 10 launch date.
If that’s the case, and at a minimum the two new foreign bond index funds are launched it’s going to be a very busy autumn for the bond folks in Malvern, Pennsylvania.
I guess the only thing I can add at this point is, “stay tuned.”