Investment Strategy
The portfolio allocates its assets to Vanguard Funds. It seeks to provide a diversified allocation to broad asset classes, including domestic and international stocks and bonds. The allocations to the asset classes and the Funds are expected to change, reducing exposure to stocks and increasing exposure to fixed income and cash equivalents, becoming more conservative until the Beneficiaries’ expected enrollment year. The Funds in this option will rebalance on a quarterly basis until reaching the Commencement Portfolio, and then will retain a static allocation in that Commencement Portfolio. The underlying funds are:
Vanguard Total Stock Market Index Fund – Institutional Plus Shares 42.60%
Vanguard Total International Stock Index Fund – Institutional Plus Shares 28.40%
Vanguard Total Bond Market II Index Fund – Institutional Shares 20.30%
Vanguard Total International Bond Index Fund – Institutional Shares 8.70%
Through its investment in Vanguard Total Stock Market Index Fund, the Portfolio indirectly employs an indexing investment approach designed to track the performance of the CRSP US Total Market Index, which represents approximately 100% of the investable U.S. stock market and includes large-, mid-, small-, and micro-cap stocks regularly traded on the New York Stock Exchange and Nasdaq. The Fund holds a broadly diversified collection of securities that, in the aggregate, approximates the full Index in terms of key characteristics.
Through its investment in Vanguard Total International Stock Index Fund, the Portfolio indirectly invests in international stocks. The Fund employs an indexing investment approach designed to track the performance of the FTSE Global All Cap ex US Index, a float-adjusted, market-capitalization weighted index designed to measure equity market performance of companies located in developed and emerging markets, excluding the United States. The Fund invests all, or substantially all, of its assets in the common stocks included in its target index.
Through its investment in Vanguard Total Bond Market II Index Fund, the Portfolio also indirectly invests in a broadly diversified collection of securities that, in the aggregate, approximates the Bloomberg U.S. Aggregate Float Adjusted Index in terms of key risk factors and other characteristics. The Index measures the performance of a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States—including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities—all with maturities of more than 1 year. The Fund seeks to maintain a dollar-weighted average maturity consistent with that of the Index, which generally ranges between 5 and 10 years.
Through its investment in Vanguard Total International Bond Index Fund, the Portfolio indirectly invests in government, government agency, corporate, and securitized non-U.S. investment-grade fixed income investments, all issued in currencies other than the U.S. dollar and with maturities of more than 1 year. The Fund employs an indexing investment approach designed to track the performance of the Bloomberg Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged), which provides a broad-based measure of the global, investment-grade, fixed-rate debt markets. To minimize the currency risk associated with investment in bonds denominated in currencies other than the U.S. dollar, the Fund will attempt to hedge its foreign currency exposure. The Fund maintains a dollar-weighted average maturity consistent with that of the Index, which generally ranges between 5 and 10 years.
Investment Risks
The Portfolio is subject to the risks of the underlying bond funds, which include interest rate risk, credit risk, income risk, call risk, prepayment risk, extension risk, country/regional risk, currency and currency hedging risk, nondiversification risk, index-related risks, index sampling risk, derivatives risk, and liquidity risk. The Portfolio is subject to the risks of the underlying stock funds, which include stock market risk, investment style risk, country/regional risk, currency risk, emerging markets risk, special risks of investing in China, index-related risks, index replicating risk, index sampling risk, nondiversification risk, and sector risk.
