Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. Online
December 24, 2007 12:00 AM

New Vanguard ETF targets funds eyeing LDI strategies

Raquel Pichardo
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    MALVERN, Pa. — Vanguard has issued an exchange-traded fund geared toward defined benefit plans investing in liability-driven investment strategies, a move industry watchers call unusual.

    The ETF, which began trading on the American Stock Exchange Dec. 10, could be the first on the market targeting such a group. The Vanguard Extended Duration Treasury Index Fund tracks the Lehman Brothers Treasury STRIPS 20-30 Year Equal Par Bond index and has a duration of 22 to 27 years. It has 20 holdings and was designed specifically to target pension funds looking to match their assets to their liabilities, said Paul Bosse, a principal at Vanguard and director of the asset allocation group.

    But observers question why investors would want to buy into an ETF that offers exposure to separate trading of registered interest and principal securities, or STRIPS, when the STRIPS themselves are so easily accessible. “It’s an unusual application for an ETF,” said Gary Gastineau, co-founder of ETF-provider Managed ETFs LLC, Summit, N.J.

    STRIPS are fixed-income securities sold at a discount to face value and mature at par. If a plan is already fully funded, then going into an investment that tracks relatively low-yielding STRIPS is fine, said Jeffrey Feldman, chairman at ETF-manager XShares Group LLC, New York. But “these (DB fund) trustees see themselves as having a dual role — funding liabilities and increasing benefits, so they want to be able to increase alpha,” said Mr. Feldman.

    The Vanguard ETF is a good first step for institutional investors starting to draw out their assets and is not meant to replace 100% of a plan’s portfolio, said Mr. Bosse. “Can people buy STRIPS themselves? Sure,” said Mr. Bosse. But Vanguard’s ETF will offer an investor the diversification of various fixed-income holdings while maintaining a constant duration, he said. This means a plan sponsor will not have to buy and sell holdings to maintain the lengthy duration.

    Officials at Vanguard expect to see the most interest from small to midsize plans — $500 million in assets and less — that might not have the economies of scale to invest in 20-plus fixed-income vehicles in a cost-effective way, said Mr. Bosse.

    Interest in this product is likely to grow as interest in LDI surges, said Mr. Bosse. He acknowledges that right now, Vanguard faces a small target audience for its new fund.

    Interest in LDI has boomed following passage of the Pension Protection Act of 2006, which enforces stricter funding rules, and Financial Accounting Statement 158, which moves the funded status of defined benefit plans onto the corporate balance sheet.

    Investors have spent the past year or two learning about LDI, but until recently, it was all talk and very little action. Some big names that have taken the plunge include General Motors Corp., New York; Ford Motor Co., Dearborn, Mich.; Boeing Co., Chicago; and the U.S. pension plan for telecom company Alcatel-Lucent, Murray Hill, N.J. (Pensions & Investments, Dec. 10).

    Anthony Rochte, senior managing director at State Street Global Advisors, Boston, said he has not come across another ETF targeting pension funds with LDI strategies. SSgA, the second largest ETF provider, does not offer such long-dated ETFs.

    The longest-dated ETF SSgA offers is the SPDR Lehman Long Term Treasury ETF with a duration of slightly more than 11 years, said Mr. Rochte. It was launched as part of a suite of ETFs that included an ultra-short fund, an intermediate fund, an aggregate fund and a long-term fund, he said.

    “When we launch our products, we don’t launch them geared at a specific market. We let the market decide how they’re going to use them,” he said.

    Recommended for You
    martin_luther_king_day_generic_i.jpg
    No P&I Daily on Martin Luther King Jr. Day
    Closed sign
    No P&I Daily over the holidays
    Happy_Thanksgiving_i.jpg
    No P&I Daily for Thanksgiving holiday
    The Institutional Investor's Guide to ESG Investing
    Sponsored Content: The Institutional Investor's Guide to ESG Investing

    Reader Poll

    January 25, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    Show Me the Income: Discovering plan sponsor and participant preferences for cr…
    The Future of Infrastructure: Building a Better Tomorrow
    Fulcrum Issues: Equity Returns and Inflation — Choose Your Own Adventure
    What Matters Most in Considering a Private Debt Strategy
    Why pursue direct lending in the core middle market?
    Research for Institutional Money Management
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing