Government debt and inflation protection highlight Vanguard’s latest offering of fixed income funds. One confirms the trend towards active strategies while the other two remind investors that Vanguard isn’t straying away from its index funds.
If the trend is an ETF provider’s friend, then active strategy funds should be more than an acquaintance in an ETF lineup. Vanguard has certainly been on top of that trend, boasting close to 100 active ETFs. With the addition of its latest fund offerings, it now has a total of eight focusing on fixed income.
The latest fund is the Vanguard Government Securities Active ETF (VGVT) that, like its other active funds, features a low expense ratio. The fund comes with 10 basis points, falling well below the FactSet segment average for similar funds.
VGVT distinguishes itself from other government bond fund offerings with its varied holdings. Rather than stick to specific maturity date ranges inherent in short-, medium, or long-term bond funds, VGVT invests across a variety of maturities. While the fund mainly focuses on Treasuries, it will also invest in other agency-backed securitized products.
Of course, the active management component is also a highlight here. The Vanguard Fixed Income Group can adjust the holdings of the fund when market conditions warrant changes. This allows for additional flexibility, allowing portfolio managers to seek more income in other opportunities or adjust holdings to maximize upside or minimize the downside.
Sticking to the Script
While active strategies might be garnering more attention, Vanguard is also sticking to what it’s been doing for many years: offering passive, low-cost funds. That bread and butter strategy speaks to their more recent bond fund offerings: the Vanguard Total Treasury ETF (VTG) and the Vanguard Total Inflation-Protected Securities ETF (VTP).
VTG tracks the Bloomberg U.S. Treasury Total Return Unhedged USD Index, offering a diversified approach to U.S. Treasuries. Like VGVT, it covers a large swath of Treasuries exposure as opposed to sticking with a single maturity focus. Again, cost-effectiveness is apparent with its low expense ratio of 0.03%.
Although the expectation the the current economic environment is that the Fed will eventually lower interest rates, nobody can accurately forecast how hot inflation will be month to month. More recently, however, inflation continues to remain sticky and persistent, as the producer price index jumped 0.9% during the month of July. Hence, the need for Treasury inflation-protected securities (TIPS). VTP does just that, appealing to investors seeking returns that more closely aligns with realized inflation. If inflation continues to surprise the market, then VTP makes for an ideal hedge.
Those privy to Vanguard’s ETF products might already be familiar with the Vanguard Short-Term Inflation-Protected Securities ETF (VTIP). Rather than stick to a short-term maturity date focus, VTP distinguishes itself from VTIP by adding exposure to TIPS with intermediate and long-term maturity dates. Stepping further out on the yield curve allows VTP to extract more income opportunities. Again, the theme of cost-effectiveness is present with its 0.05% expense ratio.
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