On Monday Vanguard launched the Vanguard Extended Duration Treasury ETF (AMEX: EDV), which tracks the Lehman Brothers Treasury STRIPS 20-30 Year Equal Par Bond Index. The underlying index tracks zero-coupon U.S. Treasury securities (Treasury STRIPS) with maturities ranging from 20 to 30 years. EDV charges an expense ratio of 0.14%.
Interestingly, EDV is a share class of the Vanguard Extended Duration Treasury Index Fund which was also launched yesterday. The index mutual fund is only available to institutional investors - there are no shares designed for retail investors. The minimum investment for its institutional class of shares [VEDTX] is $5 million at a 0.11% expense ratio; the Institutional Plus shares [VEDIX] are available for 0.08%, but require a minimum investment of $100 million. Needless to say, the average retail investor will not be looking at those share classes, but they are not the target audience anyway. In fact, the Vanguard Web site actually warns that the fund is not appropriate for individual investors.
The fund and the ETF shares are mainly intended as tools for the pension fund industry, according to a Vanguard spokesperson. They can be used to help align the duration of a plan's assets with its pension obligations, something that has become a much more pressing issue now that pension funds will be legally required to be fully funded starting in 2008 due to the Pension Protection Act of 2006, the spokesperson said. Previously, pension funds were not required to be fully funded, which occasionally resulted in insolvencies.
The AMEX began trading options on the ETF on Tuesday.
- More on US Government Bond ETFs