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View More Press Releases by Vanguard

Press release:

Vanguard Expands Target-Date Lineup, More Diversification

Issued by: Vanguard

Date: Feb. 26, 2015

February 26, 2015 --  Vanguard plans to expand its low-cost target-date lineup with an array of new mutual funds and trusts for institutional investors by the end of the second quarter. The company also will increase the exposure to international equity and fixed income in several all-in-one funds, including the Target Retirement Funds.

The Vanguard Institutional Target Retirement Funds, announced in a registration statement filed today with the Securities and Exchange Commission, are expected to be priced 30% lower than the lowest-cost target-date mutual fund option in the industry. /¹/ The funds will include 12 new target-date funds, with an estimated expense ratio of 0.10% and a minimum initial investment of $100 million. /²/

"Single-fund options have revolutionized the retirement savings landscape," said 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."

Along with the new mutual funds, Vanguard will also introduce Target Retirement Trust Select by the end of the second quarter. The Target Retirement Trusts are collective investment trusts that, like the Target Retirement Funds, invest in several Vanguard mutual funds to create a broadly diversified mix of equities and fixed income. Target Retirement Funds and Trusts have identical investment approaches, glide paths, and target allocations.
Enhancing global diversification

Vanguard also announced today that it will increase the international equity and fixed income weightings in the Target Retirement Funds and other all-in-one funds to further enhance global diversification and reduce country-specific investment risk.

International allocations within the two asset classes will increase by 10 percentage points in each portfolio of the Target Retirement Funds and the four LifeStrategy® Funds. The new allocations are shown in the table below:

Asset class     New allocation      Former allocation

Equities     60% U.S./40% international     70% U.S./30% international

Fixed income     70% U.S./30% international     80% U.S./20% international

"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," Vanguard Chief Investment Officer Tim Buckley said. "It has become easier to capture these diversification benefits as the costs of international investing have decreased."

In recent years, the cost differences between U.S. and international markets have shrunk by approximately 30%, and international transaction costs have declined as well. Therefore, the shift to higher international equity and fixed income weightings can be achieved without increasing costs.

The overall strategic asset allocation of the Target Retirement and LifeStrategy Funds won't change, and the new allocation won't alter the overall glide path of the Target Retirement Funds. The investment allocation changes to the higher weightings in international equities and fixed income are expected to be completed by year-end 2015.

Holistic approach to allocation decisions

Since introducing the Target Retirement Funds in 2003, Vanguard has made only a few allocation changes. Increased global diversification has been a consistent theme, with the addition of emerging market exposure to "near-dated" funds in 2006, increased exposure to international equities in 2010, and the addition of international fixed income in 2013.

Such changes grow out of an approach that embraces a wide range of expert perspectives including internal and external research, plan design optimization, input from consultants and plan sponsors, and analysis of investor behavior.

"We carefully debate the merits of proposed changes to our Target Retirement Funds and other funds of funds, and make them when deemed to be in the best, long-term interests of our clients," Mr. Buckley said.

To learn more about the Target Retirement changes:

/¹/ Source: Vanguard and Morningstar, as of November 2014.

/²/  Investment minimums are at the plan sponsor level. Participants are not subject to a minimum investment requirement.

Notes:

  • A registration statement relating to the Institutional Target Retirement Funds has been filed with the Securities and Exchange Commission but has not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This communication shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, these securities in any state in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state.
  • For more information about Vanguard funds, visit institutional.vanguard.com or call 800-523-1036 to obtain a prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing. Copies of the final prospectus can be obtained from Vanguard. Please note that a preliminary prospectus is subject to change.
  • Investments in Target Retirement Funds and Trusts are subject to the risks of their underlying funds. The year in the fund or trust name refers to the approximate year (the target date) when an investor in the fund or trust would retire and leave the workforce. The fund or trust will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in a Target Retirement Fund or Trust is not guaranteed at any time, including on or after the target date.
  • All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. Each LifeStrategy Fund invests in four broadly diversified Vanguard funds and is subject to the risks associated with those underlying funds.
  • Investments in stocks issued by non-U.S. companies are subject to risks including country/regional risk and currency risk.
  • Bond funds are subject to interest rate risk, which is the chance that bond prices overall will decline because of rising interest rates, and credit risk, which is the chance that a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer's ability to make such payments will cause the price of that bond to decline.
  • Vanguard Target Retirement Trusts are not mutual funds. They are collective trusts available only to tax-qualified plans and their eligible participants. Investment objectives, risks, charges, expenses, and other important information should be considered carefully before investing. The collective trust mandates are managed by Vanguard Fiduciary Trust Company, a subsidiary of The Vanguard Group, Inc.
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