Vanguard Global Minimum Volatility ETF Product brief September 30, 2017 A global equity portfolio that seeks long-term growth with less volatility than the global equity market Product summary A long-only, broadly diversified investment strategy that invests in developed and emerging market equities. A portfolio that seeks lower absolute risk than the broad global market but with the potential for better riskadjusted s. An actively managed fund with a flexible investment strategy that can adapt to changing market conditions to meet its minimum volatility objective. Key facts Ticker Management fee 1 0.35% MER 2 0.40% Inception date June 14, 2016 Investment universe FTSE Global All Cap Index Benchmark 3 FTSE Global All Cap Hedged to CAD Index Exchange Toronto Stock Exchange Currency CAD Net assets $17.7 M Distribution schedule Annually Distribution per unit $0.42698 Eligibility RRSP, RRIF, RESP, TFSA, DPSP, RDSP 1 The management fee is equal to the fee paid by the Vanguard ETF to Vanguard Investments Canada Inc. and does not include applicable taxes or other fees and expenses of the Vanguard ETF. 2 Management Expense Ratio (MER) is the MER as of March 31, 2017, including waivers and absorptions and is expressed as an annualized percentage of the daily average net asset value. The MER would have been 0.42% without any absorptions or waivers. Vanguard Investments Canada Inc. expects to continue absorbing or waiving certain fees indefinitely, but may, in its discretion, discontinue this practice at any time. 3 The ETF is actively managed and does not seek to track the performance of its benchmark. Please see Important information for further information on the benchmark, including the reason for using the benchmark and the differences between the benchmark and the ETF s investment strategy.
What is minimum volatility investing? Minimum volatility investing attempts to capture a significant share of stock market performance, while avoiding the sharpest market highs and lows. This approach allows investors to maintain exposure to equities, with the potential for improving riskadjusted s. Why Vanguard Global Minimum Volatility ETF? Active management. The portfolio management team selects stocks that display a combination of factors that can result in lower portfolio volatility. The ETF s dynamic quantitative approach is designed to minimize volatility while limiting exposure to common risk factors, even in changing market environments. Low costs. Investors earn more when they pay less. The ETF s annual management fee is just 0.35%, which compares favourably with the industry average management fee of 0.98% for actively managed mutual funds and 0.61% for actively managed ETFs. 4 How we build the portfolio Portfolio managers select stocks from developed and emerging markets that display a combination of factors that can result in lower portfolio volatility, given a prudent set of risk controls. The process is illustrated in the chart below, which shows the universe of all possible portfolios. Those that minimize volatility lie along the bottom section. The additional risk controls seek to keep the portfolio sufficiently diversified and liquid. Portfolios that meet these requirements lie in the bottom-left section. Our investment models then identify the most appropriate portfolio given these restrictions. Risk management is an integrated part of our process Vanguard Risk Management Group (RMG) supports the investment process by providing high-quality analysis, insight and reporting, leading to informed risk taking and objective global risk management. RMG reports directly to Vanguard s chief investment officer, which provides an additional, independent layer of risk control to the investment process. Global diversification. A global portfolio offers potentially lower volatility and increased factor exposure compared with a single-country or regional portfolio. Our ETF provides broad diversification, with exposure to large-, mid- and small-capitalization stocks from across the world, including emerging markets. Creating a minimum volatility portfolio Lower Exposure to other common risk factors Higher Higher Currency hedging. Our portfolio managers will generally seek to hedge most of the ETF s currency exposure back to the Canadian dollar, with the aim of further reducing volatility. Who manages the ETF? Vanguard Global Minimum Volatility ETF is managed by Vanguard Quantitative Equity Group (QEG), which operates from Vanguard s global headquarters in Valley Forge, Pennsylvania. QEG manages about $45 billion across a wide range of active equity investments. Its investment approach is defined by rigorous research, vigilant risk management, discipline and low costs. Minimize volatility Control for other risks Optimal portfolio = Global minimum volatility portfolio All squares represent a possible portfolio within the investment universe Source: Vanguard. Chart represents Vanguard s proprietary factor portfolio construction process and is for illustration purposes only. Volatility Lower 4 The figures provided are an asset-ed average, as of December 31, 2016. The average management fee for industry mutual funds was provided by Strategic Insight and includes Series F mutual funds only and excludes ETFs, funds with performance fees, money market funds, funds with management fees charged at account level, hedge funds, index funds and LSVCC funds. The average management fee for industry ETFs was provided by Bloomberg and Vanguard and excludes funds with performance fees, funds with management fees charged at account level and index funds. 2
Performance summary* s for period ending September 30, 2017 30% 20 10 0 3 months Year to date 1 year 3 years 5 years Since inception** Market price 2.25% 10.95% 11.40% 14.35% NAV 2.25% 11.04% 12.32% 14.05% Benchmark*** 4.24% 13.15% 17.99% 19.64% *Please see Important information for significant disclosures regarding the performance of the ETF. **Returns from June 14, 2016, the fund s inception date. ** *The ETF is actively managed and does not seek to track the performance of its benchmark. Please see Important information for further information on the benchmark, including the reason for using the benchmark and the differences between the benchmark and the ETF s investment strategy. Fund statistics Number of stocks 167 Median market cap (billions) $9.1 B Price/earnings ratio 21.3x Price/book ratio 2.4x Return on equity 12.7% Earnings growth rate 6.8% Cash investments 1.6% Equity yield (dividend) 2.6% Turnover rate (annualized) 50% Sector ing Financials 21.7% Industrials 17.9 Consumer Services 14.5 Consumer Goods 10.9 Health Care 10.2 Telecommunications 7.7 Utilities 7.5 Technology 6.2 Basic Materials 2.3 Oil & Gas 1.1 100.0% The sector allocations provided exclude any temporary cash investments. Top 10 holdings Grand Canyon Education Inc. 1.7% BWX Technologies Inc. 1.7 Recordati SPA 1.6 National Instruments Corp. 1.6 Kuehne + Nagel International AG 1.6 Expeditors International of Washington Inc. 1.5 Chemed Corp. 1.4 IDACORP Inc. 1.4 Brown & Brown Inc. 1.4 Amdocs Ltd. 1.4 15.3% Top country diversification United States 50.2% Japan 7.1 Canada 6.3 United Kingdom 5.3 Switzerland 4.9 Australia 4.3 Korea 2.7 Taiwan 2.4 Germany 2.4 Hong Kong 2.4 Top countries equal 88.0% of net assets. 3
Quarterly ETF commentary In the third quarter of 2017, healthy global equity markets gave central banks the confidence to begin discussing whether to tighten monetary policy. The MSCI All Country World Index ed 5.18%. Against this backdrop of strong equity performance, Vanguard Global Minimum Volatility ETF (+2.25%) trailed its benchmark index, the FTSE Global All Cap Hedged to CAD Index (+4.24%), for the quarter ended September 30. Vanguard Global Minimum Volatility ETF s objective is to achieve long-term capital appreciation with lower volatility than the global equity market. The fund has no alpha, or excess, objective. The fund also hedges its currency exposure back to the Canadian dollar to further reduce volatility. The fund s lower relative s were primarily driven by selection of less volatile stocks in health care, consumer staples and information technology. Stock selection in industrials provided the only positive to performance from a sector perspective. On a regional basis, the fund s approach to stock selection hurt within all regions but primarily in North America and the Pacific. For the year ended September 30, Vanguard Global Minimum Volatility ETF (+12.32%) underperformed its benchmark (+17.99%). Given the strength of the global equity markets over the period, the strategy s result is not surprising. Performance was hurt by weak selection in financials, health care, consumer staples and information technology. An under allocation to the energy sector provided the only positive to performance for the year. On a regional basis, stock selection within North America, as well as in the Pacific and European regions, detracted from results. The fund delivered on its goal of reducing volatility, providing a 7% discount for the year using rolling 60-day volatility periods. All s are based in CAD. Top contributors 3 months 3-month HEICO Corporation 20.39% 1.24% 0.24% Grand Canyon Education, Inc. BWX Technologies, Inc. 11.54% 1.55% 0.19% 10.89% 1.62% 0.17% Top detractors 3 months KT Corporation Sponsored ADR Quest Diagnostics Incorporated 3-month 19.73% 1.26% 0.27% 18.54% 0.98% 0.20% Merck KGaA 11.16% 0.48% 0.19% Top contributors 12 months Top detractors 12 months Grand Canyon Education, Inc. Endurance Specialty s Ltd. BWX Technologies, Inc. 12-month 51.03% 1.35% 0.65% 40.85% 0.03% 0.62% 40.11% 1.60% 0.58% Spectrum Brands s, Inc. Ramsay Health Care Limited Singapore Press s Limited 12-month 25.81% 0.87% 0.29% 21.65% 0.71% 0.25% 28.50% 0.76% 0.25% 4
Connect with Vanguard > vanguardcanada.ca Important information Commissions, management fees, and expenses all may be associated with investments in a Vanguard ETF. Investment objectives, risks, fees, expenses, and other important information are contained in the prospectus; please read it before investing. Vanguard ETFs are managed by Vanguard Investments Canada Inc., an indirect wholly owned subsidiary of The Vanguard Group, Inc., and are available across Canada through registered dealers. Date of publication: November 2017 Performance of the Vanguard ETF: Performance information of the Vanguard ETF reflects waivers of certain expenses and/or fees. If the Vanguard ETF had incurred all expenses, investment s would have been reduced. The indicated rates of are the historical annual compounded total s including changes in unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced s. The performance of the Vanguard ETF is for illustrative purposes only. Use of the benchmark: The FTSE Global All Cap Hedged to CAD Index was chosen as the ETF s benchmark because it is a broad-based global developed equity market index. Although the ETF uses this index for long-term performance comparisons, it is not managed relative to the composition of the index. There are differences between the ETF and the index in, among other things, security holdings and geographical and sector allocations. As a result, the ETF may experience periods when its performance differs materially from that of the index. This material is for informational purposes only. This material is not intended to be relied upon as research, investment, or tax advice and is not an implied or express recommendation, offer or solicitation to buy or sell any security or to adopt any particular investment or portfolio strategy. Any views and opinions expressed do not take into account the particular investment objectives, needs, restrictions and circumstances of a specific investor and thus, should not be used as the basis of any specific investment recommendation. Please consult your financial and/or tax advisor for financial and/or tax information applicable to your specific situation. Information, figures and charts are summarized for illustrative purposes only and are subject to change without notice. While this information has been compiled from proprietary and non-proprietary sources believed to be reliable, no representation or warranty, express or implied, is made by The Vanguard Group, Inc., its subsidiaries or affiliates, or any other person (collectively, The Vanguard Group ) as to its accuracy, completeness, timeliness or reliability. The Vanguard Group takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this material. This material does not constitute an offer or solicitation and may not be treated as an offer or solicitation in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. In this material, references to Vanguard are provided for convenience only and may refer to, where applicable, only The Vanguard Group, Inc., and/or may include its affiliates, including Vanguard Investments Canada Inc. All investments are subject to risk, including the possible loss of principal. Diversification does not ensure a profit or protect against a loss in a declining market. Foreign investing involves additional risks, including currency fluctuations and political uncertainty. 2017 Vanguard Investments Canada All rights reserved. INACL_CA 112017