Similar to its index sibling, Vanguard Total Bond Market Index Fund, the active bond fund invests in high-quality bonds across the investment-grade3 market, including Treasury, mortgage-backed, corporate and asset-backed securities of varying yields and maturities. The fund’s risk-controlled approach is expected to be differentiated from many actively managed total return funds. For example, the approach limits exposure to high-yield bonds 4 to 5% of the portfolio or less and imposes tight duration constraints—generally, 0.5 years above or below the fund’s benchmark, the Barclays U.S. Aggregate Float Adjusted Index.
More high-quality active bond fund options
The new fund offers two low-cost share classes—Investor Shares and Admiral™ Shares—featuring estimated expense ratios well below the core bond fund category average expense ratio of 0.80%.5
Vanguard Core Bond Fund offers two low-cost share classes:
|Share class||Ticker||Expense ratio*||Investment minimum|
During the subscription period, which runs through March 24, investors may purchase Admiral Shares at $20 per fund share, and Investor Shares at $10 per fund share. The proceeds will be held in money market investments until March 28. After the subscription period ends, the fund will invest proceeds accumulated during the subscription period in securities consistent with its investment objective.
This is the second low-cost actively managed fixed income fund that Vanguard has introduced recently. In February 2015, the company launched Vanguard Ultra-Short-Term Bond Fund, which has expense ratios of 0.12% for Admiral Shares and 0.20% for Investor Shares (reflected in the current fund prospectus).
The fund will be managed internally by Vanguard’s Fixed Income Group. Senior portfolio managers Gregory S. Nassour, CFA; Brian Quigley; and Gemma Wright-Casparius will serve as co-portfolio managers. With 71 total years of investment management experience and 42 years of Vanguard experience in aggregate, the three managers currently oversee multiple investment-grade2 corporate bond, Treasury, and government bond funds.
Experienced active bond manager
Vanguard Fixed Income Group is one of the world’s largest fixed income managers with more than $950 billion in assets under management globally.
1Duration is a measure of the sensitivity of bond—and bond mutual fund—prices to interest rate movements.
2High-quality bonds are often described as investment-grade bonds. Bond rating companies rate bonds based on the level of risk that the lender will default on its debt obligation. When a bond is rated below investment-grade, the issuer will have to pay a higher interest rate in order to entice investors to purchase the bond.
3Investment-grade is a rating that indicates that a corporate bond has a relatively low risk of default.
4High-yield bonds generally have medium- and lower-range credit quality ratings and are therefore subject to a higher level of credit risk than bonds with higher credit quality ratings.
5The average expense ratio of funds in the Intermediate-Term Bond category was 0.80% as of December 31, 2015, according to Lipper.
All asset figures are as of January 31, 2016, unless otherwise noted.
All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.
Bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer’s ability to make such payments will cause the price of that bond to decline.
An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in such a fund.