Benefits of investing with Vanguard

Competitive long-term performance 

Vanguard's investment approach provides investors with an efficient way to capture long-term market performance.

Diversification

The Fund invests in a diversified portfolio of securities, which means the Fund is less exposed to the performance fluctuations of individual securities.

Low cost investing 

The Fund has low ongoing fees as we strive to minimise the costs of managing and operating the Fund.

Risk level

Medium

Investor suitability

Investors seeking exposure to a diversified portfolio of international fixed interest securities that is relatively unaffected by currency fluctuations.

About the Fund

The ETF provides low-cost exposure to high-quality, income-generating securities issued by government-owned entities, government-guaranteed entities and investment-grade corporate issuers from around the world. The investments in the ETF are predominantly rated BBB- or higher by Standard & Poor's or equivalent ratings agency. The ETF is hedged to Australian dollars so the value of the ETF is relatively unaffected by currency fluctuations.

What is an ETF?

An ETF is an Exchange Traded Fund, which is quoted for trading on the AQUA market of the ASX (in this case, it is the CDIs that are quoted for trading on the AQUA market of the ASX). Generally, these exchange traded funds comprise broadly diversified investment portfolios of either shares, bonds or real estate securities and are constructed using an indexed investment methodology.

ETFs seek to combine the best features of index managed funds and listed shares in one investment. Vanguard ETFs come with the benefits of low cost, broad diversification, transparency and tax efficiency due to low turnover of the underlying securities. However, unlike traditional index funds which are priced only once per day, ETF securities trade on a stock exchange so they can be bought and sold at any time during the trading day at prevailing market prices. ETFs carry certain risks (refer to the section 2. Risks' in the PDS for further details).

Who is Vanguard?

Vanguard Investments Australia Ltd (Vanguard) is a wholly owned subsidiary of The Vanguard Group, Inc. With more than AUD$6.9 trillion in assets under management as of 31 December 2018, including over AUD$1.2 trillion in ETFs; The Vanguard Group Inc is one of the world's largest global investment management companies. In Australia, Vanguard has been serving financial advisers, retail clients and institutional investors for more than 20 years.

How we invest your money

The Fund seeks to track the return of the Bloomberg Barclays Global Aggregate Government-Related and Corporate Index hedged into Australian dollars before taking into account fees, expenses and tax.

The Bloomberg Barclays Global Aggregate Government-Related and Corporate Index is a market value-weighted index of securities (bonds) issued by government related entities and investment-grade corporations1. The Bloomberg Barclays Global Aggregate Government-Related and Corporate Index was not created by, and is not managed by, a related body corporate of Vanguard. The Bloomberg Barclays Global Aggregate Government-Related and Corporate Index is a sub-set of the Bloomberg Barclays Global Aggregate Index.

Bond indices change far more quickly than share indices because bonds have a finite life (maturity). Index eligibility criteria such as time to maturity and investment grading may cause bonds to enter or fall out of the index at month end when the index is rebalanced. Every time a security is either added to or removed from the index, its composition changes and may require Vanguard to modify the portfolio.

The Fund aims to hold an appropriate number of securities so as to produce a portfolio risk exposure profile consistent with that of the index. This is generally achieved by holding a representative sample of the securities included in the index. Security weightings in the Fund may vary from the index weightings. The Fund may exclude certain securities that are included in the index or may invest in securities that have been or are expected to be included in the index. The Fund may utilise futures traded on a licensed exchange to manage the overall interest rate risk exposure of the portfolio where it is unable to invest directly in physical securities. Vanguard will seek to hedge the Fund's currency exposure back to the Australian dollar in line with the Index, using forward foreign exchange contracts.

To help manage counterparty risk, Vanguard may employ collateralisation of the contracts as part of its currency hedging program. As part of the currency hedging and collateralisation program, the Fund may utilise derivatives (including over-the- counter derivatives) to effectively manage the cash required by the collateral requirements. These derivatives are used solely to support the Fund's currency hedging program, which encompasses the dual objectives of managing counterparty risk and pursuing the Fund's investment objective. The Fund may also use over-the-counter derivatives generally to manage the overall interest rate and credit risk exposure of the portfolio.

The use of over-the-counter derivatives, other than forward foreign exchange contracts, will not be used to a material extent - that is, use will generally not exceed 5% of the net asset value of the Fund, other than temporarily and in exceptional circumstances.

Importantly, derivatives will not be used to leverage the assets of the Fund.

Index information

The Bloomberg Barclays Global Aggregate Government-Related and Corporate Index is a market value-weighted index of securities (bonds) issued by government related entities and investment-grade corporations. The Index contains approximately 15,000 securities (bonds) issued by government owned entities, government guaranteed entities, and investment-grade corporate issuers.

Securities are included in the index based on issue size and amount outstanding and security type. New market inclusion is reviewed on an annual basis through the index governance process. To be included, debt securities must be investment grade and sufficiently tradable, convertible and hedgeable for offshore investors.

The index methodology uses standard rules based index methodology and market capitalisation weighting. The methodology includes the rules for constituent rebalancing, constituent inclusion, pricing sources, frequency and timing.

Bloomberg Index Services Ltd (BISL) is committed to operating its business in alignment with the IOSCO Principles for Financial Benchmarks in a proportionate manner. Please contact info@bloombergindices.com to access a summary of BISL's control framework, which outlines the governance, oversight and accountability procedures for the index determination process.

Source: BISL. For further information regarding the benchmark index values, returns and methodology, please refer to the BISL website at https://www.bloombergindices.com/bloomberg-barclays-indices/