Vanguard Adds to Low-Fee TDF Lineup

A new fund series from Vanguard features an estimated expense ratio of 10 basis points and will be offered to institutional investors meeting a $100 million initial investment requirement.

The funds are known as Vanguard’s Institutional Target Retirement Funds and are expected to launch by the end of the second quarter 2015.

“Single-fund options have revolutionized the retirement savings landscape,” notes Vanguard CEO Bill McNabb. “Professionally managed, diversified investment options such as Target Retirement Funds have helped enhance the future financial security of investors by providing a sophisticated asset allocation and a disciplined, long-term strategy in an all-in-one-fund offering.”

McNabb says more than half of participants in 401(k) retirement plans at Vanguard invest in a target-date fund (TDF), and 86% of 401(k) and other defined contribution plans administered by Vanguard offer a TDF option. The firm hopes the products will help defined contribution plan investors improve portfolio diversification.

Vanguard also announced plans to increase the international exposure in some of its asset-allocation solutions. The international equity allocation of Vanguard’s current lineup of Target Retirement Funds and LifeStrategy Funds will increase to 40% from 30%, and the international fixed-income allocation will increase to 30% from 20%.

“International holdings are a valuable diversifier in a balanced portfolio, giving shareholders exposure to return streams that don’t move in lockstep with the U.S. markets,” adds Tim Buckley, Vanguard chief investment officer. He says Vanguard research demonstrates that non-U.S. equities can enhance the returns of U.S. equities on average over time, while the primary factors driving international bond prices are relatively uncorrelated to the same factors for U.S. bonds, also providing a diversification benefit.

The overall strategic asset allocation and glide path of the current lineup of Target Retirement Funds will not change, Vanguard says. The expense ratios of the Target Retirement Funds, ranging from 0.16% to 0.18%, are not expected to change with the added international exposure. Investment allocation changes are expected to be complete by year-end.