Vanguard launches active ultra-short bond ETF

Apr 8th, 2021 | By | Category: Fixed Income

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Vanguard has introduced its first actively managed fixed income ETF with the launch of a low-cost, ultrashort duration bond strategy in the US.

Kaitlyn Caughlin, Head of Vanguard's Portfolio Review Department

Kaitlyn Caughlin, Head of Vanguard’s Portfolio Review Department.

The Vanguard Ultra-Short Bond ETF (VUSB US) has listed on Cboe BZX Exchange and comes with an expense ratio of 0.10%.

This compares with an average expense ratio of 0.22% for ultra-short-term bond ETFs, according to data from Refinitiv Lipper.

Kaitlyn Caughlin, Head of Vanguard’s Portfolio Review Department, said: “The Vanguard Ultra-Short Bond ETF offers the features of an ETF structure for investors seeking an option for anticipated cash needs in the range of six to 18 months.

“An ultra-short strategy bridges the gap between money market funds offering a stable share price and short-term bond funds, which are meant for longer investment time horizons.”

According to the fund’s prospectus, VUSB aims to provide current income while maintaining limited price volatility.

It does this by investing in money market instruments and short-term high-quality bonds including asset-backed, government, and investment-grade corporate securities while maintaining a dollar-weighted portfolio maturity below two years.

The fund’s largest credit buckets are currently BBB (34.9%), A (30.8%), AAA (14.2%), and AA (7.5%). It is currently yielding 0.6% and has an average duration of 1.0 years.

The ETF mirrors the strategy of the $17.5bn Vanguard Ultra-Short-Term Bond Fund (mutual fund) which debuted in 2015.

Both funds are co-managed by Samuel Martinez, Portfolio Manager; Arvind Narayanan, Senior Portfolio Manager and co-Head of Investment Grade Credit; and Daniel Shaykevich, Senior Portfolio Manager and co-Head of Emerging Markets and Sovereign Debt.

Martinez, Narayanan, and Shaykevich collectively have 50 years of experience in investment management including 24 years at Vanguard.

There are several ultra-short bond ETFs available in the market. The largest is the actively managed JPMorgan Ultra-Short Income ETF (JPST US) which has amassed over $17bn in assets and costs 0.18%.

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