Vanguard Unveils Bond Fund for Asset Allocation Offerings

The Vanguard Group has introduced a bond index fund for use by Vanguard funds, including Vanguard's Target Retirement and LifeStrategy funds, which invest in other Vanguard offerings.

A Vanguard news release said Vanguard Total Bond Market II Index Fund seeks to track the performance of the Barclays Capital U.S. Aggregate Bond Index (formerly the Lehman Brothers U.S. Aggregate Bond Index). The new fund shares the same portfolio management strategy and investment policies as the $65 billion Vanguard Total Bond Market Index Fund, which was introduced in 1986.

Vanguard Total Bond Market II Index Fund will only be available for use by Vanguard funds-of-funds and other similar investment products; shares of the new fund will not be available for direct purchase by investors, the company said in the announcement.

Vanguard said the offering is the primary bond component of Vanguard’s 11 Target Retirement and four LifeStrategy funds, which regularly rebalance assets among the underlying funds to maintain their respective target asset allocations.

“It is clear that our funds-of-funds offerings will become increasingly large shareholders of Vanguard Total Bond Market Index Fund. To mitigate the impact of future rebalancing activity on that fund, we believe it is necessary and prudent to introduce a second bond market index fund,’ said Vanguard CIO George U. Sauter, in the announcement.

The assets currently held by the Target Retirement and LifeStrategy funds in Vanguard Total Bond Market Index Fund will be transferred to Vanguard Total Bond Market II Index Fund.

The Investor Shares of Vanguard’s two bond market index funds have the same expense ratio of 0.19%, Vanguard said.