Vanguard Builds Up Suite of Active Bond ETFs

Vanguard today announced the launch of one of two new active bond ETFs. The Vanguard Core-Plus Bond ETF (VPLS) trades today on the Nasdaq.

The fund offers exposure primarily to U.S. investment-grade securities. However, VPLS will have the flexibility to add allocations in sectors beyond the U.S. investment-grade bond market. This includes U.S. high yield corporates and emerging market debt.

Daniel Shaykevich, Brian Quigley, Arvind Narayanan, and Michael Chang will manage VPLS. It will have an expense ratio of 0.20%.

See more: “The Benefits of Active Fixed Income Investing

Coming Soon: The Vanguard Core Bond ETF

Vanguard intends to launch another active fixed income ETF, the Vanguard Core Bond ETF (VCRB), before year-end. The fund will offer similar exposure to VPLS, but will have more modest allocations to riskier sectors such as U.S. high yield corporates and emerging markets debt.

VCRB will have the same management team as VPLS and carry an estimated expense ratio of 0.10%.

These two new active bond ETFs offer clients broadly diversified fixed income exposure with low equity correlation. They also offer the potential to outperform broad bond benchmarks over the long term.

Global Head of Vanguard’s fixed income group Sara Devereux said the funds offer “exposure to a range of sectors, qualities, and maturities.”

A Greater Preference for Active Fixed Income Management

Prior to today’s launch, Vanguard had only one active fixed income ETF, the Vanguard Ultra-Short Bond ETF (VUSB). Vanguard’s Senior Fixed Income Specialist Dan Larkin said on a panel at VettaFi’s Income Strategy Symposium that he’s seen “a greater preference for active management in fixed income.” He also noted that there has been growing adoption of the ETF vehicle among investors.

Larkin added that active strategies are used primarily to gain exposure to parts of the market that traditional indices can’t track.

Vanguard’s Active Edge

Vanguard CEO Tim Buckley said at Exchange 2023 that “the best way to evaluate” an active manager is to see if “they can tell you what their edge is.”

“What is their active edge? It has to be one that can’t be easily duplicated,” he noted. “You want one edge that nobody else has.”

According to Buckley, Vanguard’s edge is one “that no one else can duplicate… comes from our structures.” He was specifically referring to Vanguard’s ability to deliver fees lower “than almost everybody out there.”

For more news, information, and analysis, visit the Fixed Income Channel.