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PIMCO and Vanguard Unleash New Bond ETFs
December 2, 2009
SAN DIEGO (ETFguide.com) – Earlier last week, Vanguard added seven more ETFs to its current lineup. All seven are bond ETFs, but only six of them are plain.
When the ETF Profit Strategy Newsletter predicted the onset of a major rally on March 2nd, 2009, it expected the return of investor optimism. The fact, however, that a conservative outlet like Vanguard decided to launch a mortgage-backed securities fund – the Vanguard Mortgage-Backed Securities Index Fund (Nasdaq: VMBS) - is certainly notable.
Earlier in 2009, mortgage-backed securities were viewed to be the source of all financial evil; today the average investor can buy those very securities with the click of the mouse via Vanguard’s new ETF.
VMBS may invest in derivatives and owns U.S. agency mortgage-backed pass-through securities issued by Fannie Mae, Freddie Mac and Ginnie Mae.
The SPDR Barclays Capital Mortgage Backed Bond ETF (NYSEArca: MBG), sent live on 1-15-2009, is the only other ETF to provide pure exposure to the exotic mortgage-backed securities market.
Below is a list of the seven new Vanguard bond ETFs:
Vanguard Short-Corporate Bond Index Fund (Nasdaq: VCSH)
Vanguard Intermediate-term Corporate Bond Index Fund (Nasdaq: VCIT)
Vanguard Long-Term Corporate Bond Index Fund (Nasdaq: VCLT)
Vanguard Short-Term Government Bond Index Fund (Nasdaq: VGSH)
Vanguard Intermediate-Term Government Bond Index Fund (Nasdaq: VGIT)
Vanguard Long-Term Government Bond Index Fund (Nasdaq: VGLT)
Vanguard Mortgage-Backed Securities Index Fund (Nasdaq: VMBS)
As per the prospectus, VMBS may invest in derivatives.
PIMCO launches new actively managed muni-bond ETF
The PIMCO Intermediate Municipal Bond Strategy Fund (NYSEArca: MUNI) struck its first NAV on November 30th and started trading today.
MUNI intends to invest in securities whose interest is not subject to the federal alternative minimum tax (AMT). This is a concern to many investors as some of the allegedly tax-free muni-bond income could fall under AMT category and thus be taxable after all.
MUNI’s direct competition is the Market Vectors AMT-FREE Intermediate Municipal Index Fund (NYSEArca: ITM).
PIMCO realized the credit risk associated with the municipal bond market and hopes to limit this risk by applying its own layer of research and thus sort out bond issues that might turn out to be “bad apples.” Time will tell whether this approach will prove superior to index investing.
MUNI has a price tag of 0.35%.
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