Vanguard ETF strategies Build portfolios your way
Contents Build portfolios your way 3 Vanguard Diversified ETFs 4 Vanguard ETF model portfolios 8 Vanguard ETFs for dynamic asset allocation 10 Connect with Vanguard > vanguard.com.au/etfs
Build portfolios your way When it comes to constructing and maintaining your clients investment portfolios, flexibility and choice are key. Low-cost index strategies using exchange traded funds (ETFs) not only offer flexibility and choice, but also help streamline traditional portfolio construction efforts and free up your time to focus on client relationship and business needs. This guide provides three different ways to effectively implement Vanguard ETFs into portfolios. Each method or strategy is designed with a different focus in mind. From straightforward solutions for low touch clients through to model portfolios where you can create diversified and flexible portfolios that fit your clients specific needs. Vanguard Diversified ETFs Professionally managed asset allocations and rebalancing. Vanguard ETF model portfolios Low-cost, with broadly diversified asset class exposure. Flexible implementation. No matter which strategy you choose, the benefits for both your clients and your business make Vanguard ETFs an attractive solution. Benefits for your clients Vanguard ETF dynamic asset allocation Adjust portfolio exposure instantly with single asset class, low-cost ETFs. Lower return variability Vanguard ETFs aim to deliver returns that are in line with those of their respective benchmarks. This provides you with control over the amount of active risk in your clients portfolios. We believe that your ability to control or eliminate active risk can help boost client loyalty and enhance retention. Broad exposure Regardless of your clients asset allocation needs, Vanguard ETFs offer a high level of diversification through broad exposure to domestic and international markets. Lower investment costs Vanguard ETFs, whether used alone or together as a portfolio strategy, typically have lower investment costs than actively managed portfolios, allowing your clients to keep more of their investment returns. Benefits for your business Gain more time to grow your practice Using simple low-cost ETF strategies in client portfolios allows you to spend more time delivering value for clients on services beyond the investment selection. Building out your value proposition to focus on services like risk profiling, estate planning, retirement planning and tax planning often leads to higher client satisfaction, especially during down markets as clients can see the value their adviser adds in a tangible way. Streamline your investment process Simplify your efforts to offer diversified portfolios by providing access to calibrated asset allocations that fit your clients particular risk profiles and investment objectives. In turn, this also provides you with a simple and easy to communicate investment philosophy that clients can understand. Lower costs without impacting your margin As the financial advice industry continues to feel the pressure to reduce fees, ETFs can allow you to lower costs for your clients without reducing your advice margin. Vanguard ETF strategies 3
Vanguard Diversified ETFs Leverage professionally monitored asset allocations and efficient ongoing rebalancing with Vanguard Diversified ETFs. Vanguard s suite of Diversified ETFs apply investment best practices that add real value for your clients. The portfolios include strategic asset allocation and broad diversification, as well as automatic rebalancing to ensure the portfolio allocation remains intact over the long term without you having to spend time managing this process. Our Diversified ETFs offer straightforward design, low management fees and varying exposures of equity and fixed income to suit a range of client goals, risk tolerances, and time horizons. Creating a portfolio using Vanguard Diversified ETFs is an attractive option for clients that demand the benefits of a diversified low-cost portfolio that delivers competitive returns over the long term. Take advantage of the experience of a proven leader The asset allocation and portfolio construction of Vanguard Diversified ETFs are created and maintained by our Investment Strategy Group, which is responsible for overseeing Vanguard s investment methodology, including portfolio construction and asset allocation modelling. management experience at Vanguard to ensure that our portfolios reflect our investment philosophy. We believe that investors maximise their chance of success when they select and stick with asset allocations that reflect their goals, tolerance for risk and time horizons; diversify broadly within each asset class; and minimise the costs of investing. A top-down approach to portfolio construction Asset allocation Sub-asset allocation Investment selection The group draws on more than 40 years of portfolio 4 Connect with Vanguard > vanguard.com.au/etfs > 1300 655 205
Income Income Income Income Table 1. Diversified funds strategic asset allocation as at July 2017 Conservative Balanced High Asset allocation (%) Vanguard Cash Plus Fund 10.00 0.00 0.00 0.00 Vanguard Australian Fixed Interest Index Fund 18.00 15.00 9.00 3.00 Vanguard Global Aggregate Bond Index Fund (Hedged) 42.00 35.00 21.00 7.00 Total Income 70.00 50.00 30.00 10.00 Vanguard Australian Shares Index Fund 12.00 20.00 28.00 36.00 Vanguard International Shares Index Fund 8.50 14.50 20.50 26.50 Vanguard International Shares Index Fund (Hedged) 5.50 9.00 12.50 16.00 Vanguard International Small Companies Index Fund 2.00 3.50 5.00 6.50 Vanguard Emerging Markets Shares Index Fund 2.00 3.00 4.00 5.00 Total 30.00 50.00 70.00 90.00 Vanguard ETF strategies 5
Vanguard Conservative Index ETF Vanguard Balanced Index ETF ASX code: VDCO Price: 0.27 % (p.a.) Risk profile: 70% income 30% growth ASX code: VDBA Price: 0.27 % (p.a.) Risk profile: 50% income 50% growth Investment objective The Vanguard Conservative Index ETF seeks to track the weighted average return of the various indices of the underlying funds in which it invests, in proportion to the strategic asset allocation, before taking into account fees, expenses and tax. Investment objective The Vanguard Balanced Index ETF seeks to track the weighted average return of the various indices of the underlying funds in which it invests, in proportion to the strategic asset allocation, before taking into account fees, expenses and tax. Overview The ETF provides low-cost access to a range of sector funds, offering broad diversification across multiple asset classes. The Conservative ETF is biased towards income assets, and is designed for investors with a low tolerance for risk. The ETF targets a 70% allocation to income asset classes and a 30% allocation to growth asset classes. Overview The ETF provides low-cost access to a range of sector funds, offering broad diversification across each asset class. The Balanced ETF is designed for investors seeking a balance between income and capital growth. The ETF targets a 50% allocation to income asset classes and a 50% allocation to growth asset classes. Investor profile Investor profile Investment horizon Short Long Investment horizon Short Long Risk tolerance Low High Risk tolerance Low High Investment goal protection Investment goal protection Target asset allocation Target asset allocation Conservative Balanced 10.0 Cash 18.0 Australian Fixed Interest 42.0 International Fixed Interest (Hedged) 12.0 Australian Shares 8.5 International Shares 5.5 International Shares (Hedged) 2.0 International Small Companies 2.0 Emerging Markets 15.0 Australian Fixed Interest 35.0 International Fixed Interest (Hedged) 20.0 Australian Shares 14.5 International Shares 9.0 International Shares (Hedged) 3.5 International Small Companies 3.0 Emerging Markets 6 Connect with Vanguard > vanguard.com.au/etfs > 1300 655 205
Vanguard Index ETF Vanguard High Index ETF ASX code: VDGR Price: 0.27 % (p.a.) Risk profile: 30% income 70% growth ASX code: VDHG Price: 0.27 % (p.a.) Risk profile: 10% income 90% growth Investment objective The Vanguard Index ETF seeks to track the weighted average return of the various indices of the underlying funds in which it invests, in proportion to the strategic asset allocation, before taking into account fees, expenses and tax. Investment objective The Vanguard High Index ETF seeks to track the weighted average return of the various indices of the underlying funds in which it invests, in proportion to the strategic asset allocation, before taking into account fees, expenses and tax. Overview The ETF provides low-cost access to a range of sector funds, offering broad diversification across each asset class. The ETF is biased towards growth assets, and is designed for investors seeking long-term capital growth. The ETF targets a 30% allocation to income asset classes and a 70% allocation to growth asset classes. Investor profile Investment horizon Risk tolerance Investment goal Short Low protection Target asset allocation Long High Overview The ETF provides low-cost access to a range of sector funds, offering broad diversification across each asset class. The High ETF invests mainly in growth assets, and is designed for investors with a high tolerance for risk who are seeking long-term capital growth. The ETF targets a 10% allocation to income asset classes and a 90% allocation to growth asset classes. Investor profile Investment horizon Risk tolerance Investment goal Short Low protection Target asset allocation Long High High 9.0 Australian Fixed Interest 21.0 International Fixed Interest (Hedged) 28.0 Australian Shares 20.5 International Shares 12.5 International Shares (Hedged) 5.0 International Small Companies 4.0 Emerging Markets 3.0 Australian Fixed Interest 7.0 International Fixed Interest (Hedged) 36.0 Australian Shares 26.5 International Shares 16.0 International Shares (Hedged) 6.5 International Small Companies 5.0 Emerging Markets Vanguard ETF strategies 7
Vanguard ETF model portfolios Vanguard ETF model portfolios provide you with a strategic asset allocation framework to help build diversified portfolios that suit a range of investor profiles. In contrast to the Diversified ETF range, the model portfolios allow you to build a diversified exposure to the constituent asset classes through Vanguard s individual ETF and fund range. This means the framework is flexible and you can dial up or down certain allocations if that better suits your client s goals. Choose this implementation method if you want to take final control over asset allocation and are happy to rebalance the portfolio when needed. There are two model portfolios to choose from. They each offer different benefits which are described below and on the next page, but both allow you to cater for the most conservative clients through to those with a longer investment time frame that requires greater exposure to growth assets. Model portfolio A ETF/ASX/APIR Conservative Balanced High growth Income Australian fixed interest VAF 18% 15% 9% 3% International fixed interest (hedged) VBND 42% 35% 21% 7% Cash VAN0102AU 1 10% 0% 0% 0% Total income 70% 50% 30% 10% Australian equity VAS 12% 20% 28% 36% International equity 2 VTS 6.5% 11% 15.5% 20% VEU 6% 10% 14% 18% International equity (hedged) VGAD 5.5% 9% 12.5% 16% Total growth 30% 50% 70% 90% Portfolio weighted management expense ratio p.a. 0.19% 0.16% 0.15% 0.14% 1 The Vanguard wholesale fund has been used to achieve exposure to short-term money market securities to complement ETF asset allocations. 2 Allocation to international equities based on the US being approximately 53% of total world market cap. Why choose model portfolio A? r Low costs A key driver in each model portfolio is to keep costs low with portfolio weighted management expense ratios of between 0.14% and 0.19% p.a.. r Diversification All model portfolios from conservative through to high growth provide investors with broad diversification. Each strategy allows you to add over 10,000 securities to a portfolio. r Flexibility Each ETF is purchased individually so the model portfolios offer you the flexibility of dialling up or down certain asset exposures to meet a client s specific needs. 8 Connect with Vanguard > vanguard.com.au/etfs > 1300 655 205
Asset allocations between growth and income assets are split as follows: High growth Conservative: Balanced: : High growth: 30% growth 70% income 50% growth 50% income 70% growth 30% income 90% growth 10% income Return Balanced Conservative Risk (Volatility) Model portfolio B ETF/ASX/APIR Conservative Balanced High growth Income Australian fixed interest VAF 18% 15% 9% 3% International fixed interest (hedged) VBND 42% 35% 21% 7% Cash VAN0102AU 3 10% 0% 0% 0% Total income 70% 50% 30% 10% Australian equity VAS 12% 20% 28% 36% International equity VGS 8.5% 14.5% 20.5% 26.5% International equity emerging markets VGE 2% 3.5% 5% 6.5% International equity small companies VAN0021AU 3 2% 3% 4% 5% International equity (hedged) VGAD 5.5% 9% 12.5% 16% Total growth 30% 50% 70% 90% Portfolio weighted management expense ratio p.a. 0.21% 0.20% 0.20% 0.21% 3 The Vanguard wholesale fund have been used to achieve exposure to short-term money market securities and international small companies exposure to complement ETF asset allocations. Why choose model portfolio B? r Ease of administration The four model portfolios all contain locally domiciled Vanguard funds. This can result in less paperwork compared to cross-listed ETFs and save time and administration for your business. r Diversification All model portfolios from conservative through to high growth provide investors with broad diversification. Each strategy allows you to add over 10,000 securities to a portfolio. r Flexibility Each ETF is purchased individually so the model portfolios offer you the flexibility of dialling up or down certain asset exposures to meet a client s specific needs. Vanguard ETF strategies 9
Vanguard ETFs for dynamic asset allocation Vanguard s diverse range of single asset class ETFs allows you to design and build an entire portfolio using your dynamic asset allocation. Our ETFs have no minimum investment amount, so no matter how small or large the allocation to a particular ETF, they re an attractive way for clients to gain broad market exposure. Alternatively, if you re working with an established portfolio where you need to adjust or tilt the asset allocation to suit the changing needs of your clients you can add one or more of our ETFs as needed. Whether you want exposure to a certain asset class to better balance a portfolio or to instantly gain diversified exposure, Vanguard ETFs can be used to tailor your clients portfolios while keeping costs low. For example, the Vanguard FTSE Asia ex Japan Shares Index ETF (VAE) provides specific regional exposure to securities listed in Asia (excluding Japan, Australia, and New Zealand). Vanguard ETF name Benchmark ASX Code Mgmt. Cost (% p.a.) Inception Date 1 Vanguard Diversified Conservative ETF VDCO 0.27 Nov 2017 Bmk: Conservative Composite Index A DIVERSIFIED Vanguard Diversified Balanced ETF Bmk: Balanced Composite Index B VDBA 0.27 Nov 2017 Vanguard Diversified ETF Bmk: Composite Index C VDGR 0.27 Nov 2017 Vanguard Diversified High ETF VDHG 0.27 Nov 2017 Bmk: High Composite Index D AUST. FIXED INCOME INT. FIXED INCOME Vanguard Australian Fixed Interest Index ETF Bmk: Bloomberg AusBond Composite 0+ Yr Index VAF 0.20 29 Oct 2012 Vanguard Australian Government Bond Index ETF Bmk: Bloomberg AusBond Govt 0+ Yr Index VGB 0.20 24 Apr 2012 Vanguard Australian Corporate Fixed Interest Index ETF Bmk: Bloomberg AusBond Credit 0+ Yr Index VACF 0.26 23 May 2016 Vanguard International Fixed Interest Index (Hedged) ETF Bmk: Bloomberg Barclays Global Treasury Index hedged into Australian Dollars VIF 0.20 4 Dec 2015 Vanguard International Credit Securities Index (Hedged) ETF Bmk: Bloomberg Barclays Global Aggregate Government-related and Corporate Index hedged into Australian Dollars Vanguard Global Aggregate Bond Index (Hedged) ETF VCF 0.30 4 Dec 2015 Bmk: Bloomberg Barclays Global Aggregate Float Adjusted Index hedged into Australian dollars VBND 0.20 10 Oct 2017 1 Inception date represents either fund commencement date or date that initial funding was first received (whichever is later). A Conservative Composite Index - Wholesale comprises of (weight/index): 12% S&P/ASX300 Index, 8.5% MSCI World ex-australia Index (with net dividends reinvested) in Australian dollars, 5.5% MSCI World ex-australian Index (with net dividends reinvested) hedged into Australian dollars, 2% MSCI World ex-australia Small Cap Index (with net dividends reinvested) in Australian dollars, 2% MSCI Emerging Markets Index (with net dividends reinvested) in Australian dollars, 18% Bloomberg Barclays AusBond Composite 0+ Yr Index, 42% Bloomberg Barclays Global Aggregate Float Adjusted Index hedged into Australian dollars, 10% Bloomberg AusBond Bank Bill Index. B Balanced Composite Index - Wholesale comprises of (weight/index): 20% S&P/ASX300 Index, 14.5% MSCI World ex-australia Index (with net dividends reinvested) in Australian dollars, 9% MSCI World ex-australian Index (with net dividends reinvested) hedged into Australian dollars, 3.5% MSCI World ex-australia Small Cap Index (with net dividends reinvested) in Australian dollars, 3% MSCI Emerging Markets Index (with net dividends reinvested) in Australian dollars, 15% Bloomberg Barclays AusBond Composite 0+ Yr Index, 35% Bloomberg Barclays Global Aggregate Float Adjusted Index hedged into Australian dollars. C Composite Index - Wholesale comprises of (weight/index): 28% S&P/ASX300 Index, 20.5% MSCI World ex-australia Index (with net dividends reinvested) in Australian dollars, 12.5% MSCI World ex-australian Index (with net dividends reinvested) hedged into Australian dollars, 5% MSCI World ex-australia Small Cap Index (with net dividends reinvested) in Australian dollars, 4% MSCI Emerging Markets Index (with net dividends reinvested) in Australian dollars, 9% Bloomberg Barclays AusBond Composite 0+ Yr Index, 21% Bloomberg Barclays Global Aggregate Float Adjusted Index hedged into Australian dollars. D High Composite Index - Wholesale comprises of (weight/index): 36% S&P/ASX300 Index, 26.5% MSCI World ex-australia Index (with net dividends reinvested) in Australian dollars, 16% MSCI World ex-australian Index (with net dividends reinvested) hedged into Australian dollars, 6.5% MSCI World ex-australia Small Cap Index (with net dividends reinvested) in Australian dollars, 5% MSCI Emerging Markets Index (with net dividends reinvested) in Australian dollars, 3% Bloomberg Barclays AusBond Composite 0+ Yr Index, 7% Bloomberg Barclays Global Aggregate Float Adjusted Index hedged into Australian dollars. 10 Connect with Vanguard > vanguard.com.au/etfs > 1300 655 205
For clients seeking exposure to many of the world s largest companies listed in major developed countries, the Vanguard MSCI Index International Shares (Hedged) ETF (VGAD) allows investors to participate in the long-term growth potential of international economies outside Australia. The ETF is hedged to Australian dollars so the value of the fund is relatively unaffected by currency fluctuations. Vanguard ETF name Benchmark ASX Code Mgmt. Cost (% p.a.) Inception Date 1 PROPERTY AUSTRALIAN EQUITIES INTERNATIONAL EQUITIES Vanguard Australian Shares Index ETF Bmk: S&P/ASX 300 Index VAS 0.14 4 May 2009 Vanguard Australian Shares High Yield ETF Bmk: FTSE ASFA Australia High Dividend Yield Index VHY 0.25 23 May 2011 Vanguard MSCI Australian Large Companies Index ETF Bmk: MSCI Australian Shares Large Cap Index VLC 0.20 23 May 2011 Vanguard MSCI Australian Small Companies Index ETF Bmk: MSCI Australian Shares Small Cap Index VSO 0.30 23 May 2011 Vanguard Australian Property Securities Index ETF Bmk: S&P/ASX 300 A-REIT Index VAP 0.23 11 Oct 2010 Vanguard MSCI Index International Shares ETF Bmk: MSCI World ex-australia (with net dividends reinvested), in Australian VGS 0.18 18 Nov 2014 dollars Index Vanguard MSCI Index International Shares (Hedged) ETF Bmk: MSCI World ex-australia (with net dividends reinvested) hedged into VGAD 0.21 9 Dec 2015 Australian dollars Index Vanguard FTSE Europe Shares ETF Bmk: FTSE Developed Europe All Cap Index (with net dividends reinvested) in VEQ 0.35 9 Dec 2015 Australian dollars Vanguard FTSE Asia ex Japan Shares Index ETF Bmk: FTSE Asia Pacific ex Japan, Australia and New Zealand Net Index in AUD VAE 0.40 9 Dec 2015 Vanguard US Total Market Shares Index ETF VTS 0.04 12 May 2009 Bmk: CRSP US Total Market Index Vanguard All-World ex-us Shares Index ETF VEU 0.11 12 May 2009 Bmk: FTSE All-World ex-us Index Vanguard FTSE Emerging Markets Shares ETF Bmk: FTSE Emerging Markets All Cap China A Inclusion Index (with net dividends reinvested) in AUD 1 Inception date represents either fund commencement date or date that initial funding was first received (whichever is later). VGE 0.48 18 Nov 2013 Vanguard ETF strategies 11
Vanguard s Markets Team Giving you the tools you need to achieve the best possible ETF trading outcomes Led by dedicated ETF specialists located in our head office in Melbourne, Australia, the Vanguard Markets Team provides the following services: Immediate responses to ETF trade and execution queries Access to market makers who can add depth to the market and keep buy/sell spreads tight Education on potential ETF trading strategies ETF research, tools and thought leadership You can contact the Vanguard Markets Team anytime between 9am 5pm (Melbourne time), Monday to Friday on 1300 655 888 Connect with Vanguard > vanguard.com.au/etfs > 1300 655 205 Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFSL 227263) (Vanguard) is the issuer of the Vanguard ETFs. Vanguard is the issuer of the Prospectus on behalf of the US listed exchange traded funds ( ETFs ) described in the Prospectus. Vanguard has arranged for interests in the US ETFs to be made available to Australian investors via CHESS Depositary Interests that are quoted on the AQUA market of the Australian Securities Exchange ( ASX ). Vanguard ETFs will only be issued to Authorised Participants, that is, persons who have entered into an Authorised Participant Agreement with Vanguard. Retail investors can transact in Vanguard ETFs through a stockbroker or financial adviser on the secondary market. Retail investors can only use the Prospectus and PDS for informational purposes. We have not taken your circumstances into account when preparing this publication so it may not be applicable to your circumstances. You should consider your circumstances and the relevant PDS and/or Prospectus before making any investment decision. You can access the relevant PDSs and/or Prospectus at vanguard.com.au. This publication was prepared in good faith and we accept no liability for any errors or omissions. 2017 Vanguard Investments Australia Ltd. All rights reserved. VETFS_112017