The third largest ETF recently reached the age of 13. Yes, the Vanguard 500 ETF (VOO) is now Taylor Swift’s lucky number. (Am I one of the first people to use Ms. Swift and Vanguard ETFs in the same sentence?)
As the father of a Jewish son, the significance of this age is meaningful. My son turned 13 in June, three months before VOO. In our tradition, he became a man when he then read from the Torah at his bar mitzvah. It was indeed a time for celebration.
Vanguard has a lot to celebrate about VOO. VettaFi was honored to join the asset manager at the New York Stock Exchange (NYSE) for an opening bell ceremony last week. VOO has $330 billion in assets.
Vanguard Team at the NYSE
VOO Is Gaining Market Share
In the past year, the Vanguard ETF pulled in $34 billion of new money, ahead of $25 billion and $3 billion for IVV and SPY, respectively. IVV and VOO both have net expense ratios of 0.03%, lower than SPY’s 0.09%. This modest fee has made them more appealing to advisors and retail investors. Vanguard even charges 1 basis point less for VOO than their admiral mutual fund share class Vanguard S&P 500 (VFIAX) even though the $410 billion VFIAX came to market first.
SPY appeals to many ETF traders due to its relatively high volume. However, VOO traded over 4 million shares on average over the last 50 days. This is ample liquidity to meet the needs of most. VOO rose 13% on an annualized basis since inception through September 2023. Said differently, investors would have seen a fivefold increase if they bought and held from the beginning. Of course, past performance is not indicative of future results.
Using Vanguard ETFs in a Diversified Portfolio
Many people pair VOO with the Vanguard Total Bond Market ETF (BND) in a broader portfolio. The fixed income ETF has $95 billion in assets and is the largest bond ETF trading in the U.S. BND has two-thirds of its assets in U.S. government bonds, with most of the remainder in investment-grade corporate bonds. This high-quality index-based ETF has a 30-day SEC yield of approximately 5% and charges a 0.03% fee. BND historically provided diversification benefits due to its lower volatility than core equity strategies.
While Vanguard is known to ETF investors as a provider of index-based fixed income strategies, it also has a strong active management heritage. For example, an active mutual fund, the Vanguard Core Bond (VCORX), is rated four stars by Morningstar.
New Vanguard ETFs on the Way
Vanguard plans to launch the Vanguard Core Bond ETF (VCRB) in December. The fund will share the benchmark, management team, and expense ratio (0.10%) of its mutual fund counterpart. Like VCORX, VCRB will offer exposure primarily to U.S. investment-grade securities with modest allocations to riskier sectors. However, the ETF and the mutual fund will be separate and distinct products.
A second ETF, the Vanguard Core-Plus Bond ETF (VPLS), will also launch by year-end. This fund is likely to incur more credit risk in exchange for more reward potential than VCRB.
These will not be Vanguard’s first active fixed income ETFs. The asset managers offer the Vanguard Ultra-Short Income ETF (VUSB), which launched in 2021 and has already gathered over $4 billion in assets. VUSB has an average duration of just under one year, making it far less interest rate sensitive than BND (6.4 years) and VCORX (6.3 years).
Vanguard will be speaking at the VettaFi Income Strategy Symposium on October 27. I’m excited to hear their take on active funds and what advisors need to know heading into 2024. While VOO just hit a nice milestone, Vanguard is not done growing. Before I know it, Vanguard’s active fixed income ETFs will be teenagers too.
For more news, information, and strategy, visit the Fixed Income Channel.