Vanguard Files for All-World ETF on Heels of BGI Launch

By Matthew Hougan

Last week, Barclays Global Investors [BGI] launched the first all-world equity index ETF in the U.S.

Now, everybody wants in on the game.

Vanguard said today that it has filed a registration statement with the Securities and Exchange Commission to launch the Vanguard Global Stock Index Fund. The fund will be available as Investor shares, Institutional shares and ETF shares. Vanguard Chief Investment Officer Gus Sauter called the fund "a logical extension to our index fund lineup"; it also seems like a logical response to chief competitor BGI moving aggressively into the space.

For the Vanguard fund, the Investor shares will have a $3,000 minimum, a 0.45% expense ratio and a 0.15% "purchase fee," which is essentially a front-end load. The Institutional shares will have a $5 million minimum and a 0.20% expense ratio. These two share classes will charge a 2.0% redemption fee for positions held less than two months, to discourage market timing.

The ETF shares will charge 0.25% in annual expenses, and will have no purchase or redemption fee. That expense ratio undercuts the BGI offering by 10 basis points (0.10%); the iShares MSCI ACWI Index Fund (NASDAQ: ACWI) charges 0.35%. Of course, the iShares fund was the first-mover, which could give it an advantage in attracting assets.

Similar Funds

The Vanguard fund will track the FTSE All-World Index, a float-adjusted cap-weighted index measuring the performance of large- and mid-cap stocks worldwide. The index holds "nearly 2,900" stocks in 48 countries around the world.

The iShares fund is similarly diversified, and similarly constructed; the underlying index boasts 2,884 stocks in 48 countries.

Both Vanguard and BGI will use representative sampling techniques to track the indexes, rather than purchasing all the stocks in the index. The Vanguard prospectus suggests that the fund will commit to holding a certain percentage of all the stocks in the index, and use sampling to represent the remaining components, but it does not say what that fixed percentage will be.

Northern Trust is also planning to launch an all-world ETF tied to the DJ Wilshire Global Stock Index, the most complete index of global stocks available. It's not clear, however, when this product will launch.

• The Vanguard prospectus is available here.
• Full coverage of the iShares launch is available here.
• More on choosing the right ETF