Vanguard Launches New Fixed-Income Model Portfolios for FAs

Vanguard is continuing its push into fixed income, this time with Vanguard Fixed Income Risk Diversification and Vanguard Fixed Income Total Return, the firm’s first dynamic asset allocation fixed-income model portfolios for financial advisors.

The Vanguard Fixed Income Risk Diversification and Vanguard Fixed Income Total Return model portfolios, which use low-cost exchange-traded funds and mutual funds and became available Monday, have average expense ratios of 0.05% and 0.08%, respectively, according to a press release.

The former is constructed for financial advisors and their clients who are looking for exposure to global investment-grade bonds intended to counterbalance equity market volatility, while the latter is for those seeking wealth accumulation and risk diversification from fixed income.

“Fixed income continues to be a strong asset class for investors; Vanguard’s 10-year market forecast returns for U.S. aggregate bonds is between 4.7% and 5.7%, which is higher than our forecasted returns for U.S. equities,” Brent Beardsley, head of advisor solutions for Vanguard, told etf.com. “Recognizing the value fixed income provides, paired with our strong fixed-income capabilities, we are excited to support advisors’ fixed-income portfolio construction needs through our new, dynamic fixed-income models.”

Fixed-Income Model Portfolio Allocations

The fund giant’s fixed-income model portfolios each seek to outperform a market-capitalization-weighted benchmark. The benchmarks are the Bloomberg U.S. Aggregate Index for the Fixed Income Risk Diversification model and the Bloomberg U.S. Universal Index for the Fixed Income Total Return model, according to a press release. 

The allocations are recalibrated throughout the year to align with the Vanguard Capital Markets Model (VCMM) 10-year forecast.

Because the announcement refers to the models as “dynamic,” the allocations are probably going to shift around over time, reflecting Vanguard’s bond outlook, Daniel Sotiroff, senior manager research analyst at Morningstar, told etf.com. Based on Vanguard’s other models, he added that he doesn’t expect the fund manager to dramatically swing allocations back and forth but to instead be relatively conservative.

The Benefit for Advisors 

While the new offerings join the firm’s existing suite of model portfolios for financial advisors, the latest portfolios are different in that they focus strictly on fixed income.

The benefit to advisors is that they have a better understanding of how to use Vanguard’s ETFs and mutual funds to actually achieve a desired outcome, Sotiroff said.

“They don’t have to spend as much time sorting out, ‘How do I actually allocate this to try and beat a benchmark?’” he added. “Vanguard is kind of doing that work for you and showing you how to use these various funds and various mixes.”