Vanguard International Credit Securities Index (Hedged) ETF (VCF)

Overview

The fund focuses on investing a significant portion of its assets in various types of mortgage-related assets under normal market conditions. It commits at least 80% of its net assets, including any borrowings for investment purposes, to this specific sector. The range of mortgage-related assets includes both agency and non-agency residential mortgage-backed securities, commercial mortgage-backed securities, asset-backed securities that are connected to housing, and more. This includes a variety of instruments and derivatives that provide exposure to such investments, signifying a broad approach to investing in the mortgage sector. The fund is non-diversified, meaning it may concentrate its investments in fewer securities or market sectors than diversified funds, potentially leading to high volatility in its performance.

Products and Services

The fund offers a multitude of investment opportunities in the mortgage sector, providing exposure to a wide array of mortgage-related assets. Below is a detailed look at the primary types of investments the fund focuses on:

• Agency Residential Mortgage-Backed Securities: These are securities backed by residential mortgages which are guaranteed by a government agency or a government-sponsored enterprise. This type of investment is known for providing a relatively stable return, backed by the creditworthiness of the issuing agency.
• Non-Agency Residential Mortgage-Backed Securities: Unlike their agency counterparts, these securities are not backed by a government agency, posing a higher risk but potentially offering higher returns. They are backed by the mortgage payments of the residential properties underlying the security.
• Commercial Mortgage-Backed Securities: These securities are backed by mortgages on commercial properties rather than residential. This type of investment offers exposure to the commercial real estate market, which can behave differently from the residential market.
• Asset-Backed Securities Related to Housing: These are securities backed by a pool of assets related to housing, but not necessarily by the mortgages themselves. Examples could include securities backed by rental income from residential properties.
• Whole Loans, Loans, Loan Participations: The fund may invest directly in whole mortgage loans, participate in loans alongside other investors, or purchase parts of loans. This direct investment in loans allows for potentially higher returns, albeit with increased risk.
• Warehouse Financing Related to Mortgages: This involves lines of credit or short-term loans to mortgage bankers and other real estate professionals to fund mortgages until they can be sold to permanent investors. It's a way for the fund to invest in the mortgage-creation process itself.
• Mortgage Servicing Rights: These are rights to service mortgages in exchange for a fee. By investing in these, the fund gains exposure to the mortgage servicing industry, an area that can provide consistent, fee-based income.
• Derivatives That Provide Exposure to Such Investments: The fund may use various derivatives to gain exposure to the mortgage market. These financial instruments can be used to hedge risks or to take speculative positions on the future direction of mortgage-related assets.