ETF Spotlight on the Vanguard Short-Term Bond ETF (NYSEArca: BSV), part of an ongoing series.
Assets: $12.2 billion.
Objective: The Vanguard Short-Term Bond fund tries to reflect the performance of the Barclays U.S. 1-5 year Government/Credit Float Adjusted Index, which is comprised of investment-grade bonds with a dollar-weighted average maturity of 1 to 5 years.
Holdings: U.S. Treasuries.
What You Should Know:
- Vanguard Group sponsors the fund.
- BSV has a 0.10% expense ratio.
- The fund has 1605 holdings and the top ten make up 13.2% of the overall portfolio.
- Bond allocations include finance 10.3%, foreign 7.0%, industrial 10.5%, Treasury/Agency 70.5% and utilities 1.4%.
- Credit quality breakdown includes U.S. government 70.4%, Aaa 3.0%, Aa 6.2%, A 11.9% and Baa 8.5%.
- The bond fund has an average maturity of 2.8 years and an average duration of 2.7 years.
- BSV has a 0.48% 30-day SEC yield.
- The ETF is up 0.4% over the past three months, up 0.3% year-to-date and up 1.5% over the past year.
- “Bond prices have an inverse relationship to interest rates. If interest rates go up, bond prices go down,” according to Morningstar analyst Timothy Strauts. “There have been very few sustained periods of rising interest rates during the last 30 years.”
- ” With interest rates at or near all-time lows, investors today are rightly concerned that rates will rise in the future. BSV’s portfolio has an average duration of around three years,” Strauts added. “This means that if interest rates rise 1%, the value of BSV’s portfolio would decline by about 3%.”
Next page: The latest news
The Latest News:
- “Many investors are concerned with duration risk in long-term treasuries and other fixed-income vehicles” Andy O’Rourke, a managing director with Direxion, said in a Financial Magazine article. “The natural reaction is to take an even more conservative approach and seek shelter with short-term, fixed-income vehicles.”
- The coupon rate on five-year Treasury bonds fell 200 basis points from its previous auction to 2.125% Tuesday, reports Ronnel W. Domingo for Inquirer Business.
- 5-year Treasuries currently have a yield of 0.82%.
- “The Treasury market is cheaper than almost any other comparable market on a relative value basis,” Jim Vogel, an interest-rate strategist at FTN, said in a Bloomberg article. “There is the thought out there that Treasuries are expensive when in reality they offer the most value given the improving economy and the relative real yield they offer compared to others.”
Vanguard Short-Term Bond ETF
For past stories in this series, visit our ETF Spotlight category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own BSV.