Vanguard Active Bond ETFs: The Complete Guide

A combination of inflation-induced high interest rates, market uncertainty, and product innovation has helped to elevate the active fixed income space in 2024.  

Vanguard, known for its pioneering role in index funds, has also established a strong presence in the world of actively managed funds, most recently with active bond ETFs. 

The three active fixed income exchange-traded funds, one introduced in 2021 and the other two debuting in 2023, aim to provide investors with potential outperformance through the expertise of Vanguard's portfolio managers.

Here’s what investors and advisors should know about these actively managed Vanguard funds.

Vanguard Knows Active Management

In 1929, Vanguard debuted its first actively managed fund to provide fixed-income exposure, the Vanguard Wellington Fund, which includes stocks and bonds. Over the decades, Vanguard expanded its offerings to include a wide range of actively managed bond funds, focusing on various sectors such as government bonds, corporate bonds, and international bonds.  

These funds benefit from Vanguard's low-cost approach and a disciplined investment process, making them popular choices for investors seeking active management in fixed income while still adhering to Vanguard’s philosophy of broad diversification and low expenses.  

Vanguard’s actively managed bond funds have earned a reputation for consistent performance and prudent risk management, solidifying the company’s standing in both the passive and active investment arenas. 

Vanguard Actively Managed Bond ETFs

Data as of August 23, 2024. 

Here are some key details about Vanguard's actively managed bond ETFs: 

Vanguard Ultra-Short Bond ETF

The Vanguard Ultra-Short Bond ETF (VUSB), Vanguard’s first active fixed-income ETF, primarily invests in investment-grade fixed income securities with a short-term maturity, typically less than one year. In the recent inflationary environment, this has provided investors with a combination of high yields and low interest-rate risk. 

• AUM: $4.6 billion 
• SEC Yield: 5.05% 
• Expense ratio: 0.10% 

Vanguard Core Bond ETF

The Vanguard Core Bond ETF (VCRB) was introduced in 2023 and is designed to provide investors with broad exposure to the U.S. investment-grade bond market, including U.S. Treasuries and mortgage-backed securities, as well as up to 10% of assets to foreign-denominated bonds. 

• AUM: $490.4 million 
• SEC Yield: 4.60% 
• Expense ratio: 0.10% 

Vanguard Core-Plus Bond ETF

The Vanguard Core-Plus Bond ETF (VPLS) is a “go anywhere” bond fund launched in 2023. VPLS is designed to provide investors with a flexible approach to fixed income by seeking moderate to high-income-level income investing opportunities in various bond sectors and maturities. 

• AUM: $212.0 million 
• SEC Yield: 4.79% 
• Expense ratio: 0.20% 

Tip: See our article, Actively Managed ETFs: What Investors Need to Know, to learn their benefits and risks, as well as the top active ETF by assets under management. Also see our article on Vanguard’s new active municipal bond ETFs coming later in 2024. 

Why Are Active ETFs Growing in Popularity?

The growing popularity of actively managed ETFs in 2024 can be attributed to several factors, including market volatility, a surge in new products, and low expenses. 

• Market volatility: While passively managed funds tend to outperform in stable market conditions, the increased volatility in recent years, especially in 2024, has made investors pursue active management strategies that aim to outperform benchmarks during challenging market conditions. 
• Product innovation: The ETF market has surged in the number of actively managed options, offering investors a wider range of choices to suit their specific needs. 
• Lower costs: Active fixed income ETFs provide the advantages of active management strategies at a lower cost compared to actively managed mutual funds. 
• Investor demand: As investors become more sophisticated, they are increasingly seeking active management strategies to potentially capture alpha (excess returns) over passive investing. 
• Potential for outperformance: In certain market environments, actively managed ETFs have outperformed their passive benchmarks, attracting investor interest. 

Overall, the combination of these factors has contributed to the increased popularity of actively managed ETFs in 2024, including Vanguard’s active bond funds. However, it's important to note that active management does not guarantee outperformance, and investors should carefully consider the associated costs and risks before making investment decisions.