LONDON, Wednesday 17th June 2009 – Vanguard Investments U.K., is launching a total of 11 UK and Irish domiciled funds available to U.K. investors. The funds will be available on a number of advisory and retail platforms, and will begin accepting investments on 23rd June 2009. (See notes to editors for further details and charges). The funds are:
These passively-managed funds are designed to provide the building blocks for a diversified equity and bond portfolio by enabling U.K. investors and their advisers to allocate across global markets as desired. Globally, Vanguard oversees more than £320 billion in equity and bond index mandates, and has more than three decades of index management experience.
Tom Rampulla, Managing Director, Vanguard Investments U.K., comments: “Vanguard’s index funds offer investors broadly diversified exposure to equity and fixed income markets, at very low cost. Costs matter, as each pound of cost is a pound taken out of your investment. We are confident that these funds have among the lowest total expense ratios in their peer groups.”
In keeping with Vanguard’s tradition of transparency and ‘plain talk,’ the firm is taking measures to clearly disclose all fees paid by investors, and to ensure those fees are applied fairly to investors in the funds. “We believe that clear disclosure standards are necessary if the interests of investors are to be protected,” said Mr. Rampulla.
| Fund Name | TER/AMC | Index | Purchase Fee* |
| Vanguard FTSE U.K. Equity Index Fund | 0.15% | FTSE All-Share Index | 0.50% (SDRT) |
| Vanguard FTSE U.K. Equity Income Index Fund | 0.25% | FTSE U.K. Equity Income Index | 0.50% (SDRT) |
| Vanguard FTSE Developed World ex-U.K. Equity Index Fund | 0.30% | FTSE Developed ex-U.K. Index | None |
| Vanguard FTSE Developed Europe ex-U.K. Equity Index Fund | 0.25% | FTSE Developed Europe ex-U.K. Index | None |
| Vanguard U.S. Equity Index Fund | 0.20% | S&P Total Market Index | None |
| Vanguard Japan Stock Index Fund | 0.30% | MSCI Japan Index | None |
| Vanguard Pacific ex-Japan Stock Index Fund | 0.30% | MSCI Pacific ex-Japan Index | 0.10% |
| Vanguard Emerging Markets Stock Index Fund | 0.55% | MSCI Emerging Markets Index | 0.40% purchase and 0.40% redemption |
| Vanguard U.K. Investment Grade Bond Index Fund | 0.20% | Barclays Capital Global Aggregate GBP Non-Government Bond Index | 1.50% |
| Vanguard U.K. Government Bond Index Fund | 0.15% | Barclays Capital Global Aggregate U.K. Government Bond Index | 0.10% |
| Vanguard Global Bond Index Fund | 0.25% | Barclays Capital Global Aggregate Bond Index | 0.30% |
Vanguard funds will be available on platforms and we will work with the increasing number of IFAs who are moving away from a commission-based model to what is known in regulatory terms as "Adviser Charging" or a fee-based model. We will also work with wealth managers, family offices, DC providers, and institutions.
Vanguard is a “natural-fit” with fee based IFAs as we typically share an investment philosophy. Specifically, we stress the importance of low-costs, broad diversification, an emphasis on financial-planning, and fee transparency.
We expect most people who invest in our funds to do so on the advice of a fee-based adviser. Investors who know exactly what they want may access our funds via retail platforms.
We would encourage investors who are not sure of their investment requirements to seek advice.
Q. Why did Vanguard choose these specific indices for the funds?
Vanguard selects indices that we believe best represent the objective of each fund. In-depth analysis is performed to ensure that the index provider’s construction methodology achieves the desired investment objective. Factors considered in the analysis include, number of securities, liquidity, security weighting, and index maintenance.
Q. What is the minimum investment in these funds?
While the minimum investment for a direct investment with Vanguard is £100,000, we anticipate that the majority of our business in the UK will come via fee-based IFAs and the platforms that they use. Accordingly, individuals investing through these channels will have access to the funds consistent with the platform minimum investment.
Q. Why are some of them UK OEICs and others Irish funds?
We select our fund structure based upon a number of criteria including tax efficiency, costs, economies of scale, and the ability to implement our investment strategy. Given these factors, we have selected a combination of UK-domestic OEICs and Irish domiciled, sterling-denominated UCITS funds and share classes.
Q. What is the Annual Charge?
The Annual Charge represents the Annual Management Charge (AMC) for the new UK funds and the Total Expense Ratio (TER) for the existing Irish funds. So, for example, in the first year of a fund’s life a fund has an annual management charge – and after the first year its total expense ratio can be calculated. The TER is calculated based on historic data, whereas the AMC is a charge levied on an on-going basis. This may result in differences between the AMC and TER in certain periods.
Q. How is your Total Expense Ratio (TER) the same as your Annual Management Charge (AMC)?
Vanguard firmly believes that it is essential that investors are aware of all fees that they incur. In order to provide a high level of transparency, we seek to ensure that the AMC and TER are equal as often as possible. We will achieve this by paying all expenses incurred in the operation of the fund out of the AMC, rather than as an additional deduction from the fund’s assets. In other words, we look to pay all fund operating expenses out of the management fee we receive.
Q. What are Purchase Fees? Are these sales charges under a different name? Why do the Purchase Fees vary, and why doesn’t every fund have them?
Purchase fees are there to cover the transaction costs involved in buying the underlying securities held within the fund. The purchase fee is paid directly into the fund to cover these transaction costs – it is not kept by the manager and therefore not a sales charge. By doing this we can ensure that existing shareholders are not adversely impacted by new investment into the funds.
These costs could be local taxes, or bid-offer spreads on stocks or bonds in less liquid markets. By way of example, in some mature equity markets transaction costs are very low and we have no purchase fee. Conversely, the spreads on UK investment grade bonds are currently well above the historic norm. As these reduce, we expect the fee to do likewise.
We aim to make these costs as fair as possible and clearly communicate the way we assign charges. This commitment to fair costs is demonstrated in how we manage Stamp Duty Reserve Tax (SDRT). SDRT is levied by Her Majesty’s Revenue & Customs (HMRC) when UK stocks are bought and when shares of a fund investing in UK stocks are redeemed and subsequently re-issued. At a rate of 0.5%, this is a significant cost and so we levy a charge to cover it to protect the interests of long term investors. All OEICs and Unit Trusts sold in the UK are subject to such transaction costs as explained above. We believe that what differentiates Vanguard is that we apply them transparently and, we think, fairly – so that existing shareholders are not adversely impacted by new inflows.