Are You Getting the Credit You Deserve?

Retail clients held $2.9 trillion in money market funds at the end of April 2025.¹ But how much of that money is earmarked for near-term needs, and how much might be better invested elsewhere?

Those are good questions to ask your clients. Not only because it helps serve your clients’ best interests but also because excess cash holdings represent potentially lost business—and most advisors, understandably, don’t charge management fees on money markets.

Now, there’s a new way for clients’ so-called lazy money to get activated, with Vanguard’s new active Short Duration Bond ETF (VSDB). 

The Impact

VSDB is designed to offer high current income while maintaining limited price volatility. It has the potential to deliver yields that significantly outpace money markets and many other short-term investment options. Just as higher-octane gas can offer better performance for vehicles designed to use it, this product can offer improved performance for investors looking to calibrate the short-term portion of their portfolios for funds that aren’t needed in the near term.  

That means you can get the credit you deserve for putting your clients’ money to work. 

The Portfolio

The ETF focuses on U.S. investment-grade bonds, including Treasuries, agencies, corporates, and asset-based securities, along with the active leeway to expand into high yield and the bonds of foreign countries, including emerging markets.

• A key feature the fund will have is the ability to invest up to 25% in high yield, though that is expected to be around 10% in most market environments.
• Short-term corporate credit typically offers higher yields than Treasuries of comparable duration. Short-term credit has less exposure to volatility that can come from changes in interest rates compared with intermediate- and long-term bonds.

Higher yields and lower exposure to volatility has helped short-term credit achieve a strong track record over the past 15 years. 

Short-term credit has provided superior risk-adjusted return

Past performance is not a guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

Notes: Short credit is represented by the Bloomberg Credit 1-5 Year Index. Short Treasury is represented by the Bloomberg 1-5 Year Treasury Index. Short gov/cred is represented by the Bloomberg US Govt/Credit 1-5 Year Index. Intermediate credit is represented by the Bloomberg US Credit 5-10 Year Index. Intermediate Treasury is represented by the Bloomberg US Treasury 5-10 Year Index. Intermediate gov/cred is represented by the Bloomberg US Govt/Credit 5-10 Year Index.
U.S. Aggregate is represented by the Bloomberg US Aggregate Bond Index. U.S. Universal is represented by the Bloomberg US Universal Index. Long credit is represented by the Bloomberg US Long Credit Index. Long Treasury is represented by the Bloomberg US Treasury 10+ year Index. Long gov/credit is represented by the Bloomberg US Govt/Credit Long Index.

Source: Morningstar, as of December 31, 2024.

The Benchmark

Portfolio managers will seek to outperform the Bloomberg US Universal 1-5 Year Float Adjusted Index, which is the short-term version of the Bloomberg US Universal Float Adjusted Index, the same benchmark Vanguard uses for the Vanguard Core-Plus Bond ETF (VPLS). 

• Since its 2005 inception, 90% of the calendar-year returns for Bloomberg Universal 1-5 Year Float Adjusted Index have been positive. 

The Cost

VSDB’s expense ratio is 0.15%, which is half of the asset-weighted expense ratio for the Morningstar Short-Term Bond category as of April 30, 2025. 

More Diversified

VSDB is a more diversified offering than our other short-term products and focuses predominantly on credit.

The ETF is designed to be more flexible, with wider guardrails and more levers to access alpha than Vanguard’s other short-term offerings. This approach is meant to fully leverage the capabilities of Vanguard’s active Fixed Income Group, Vanguard’s global active bond fund team, which has been managing active funds for nearly 50 years. 
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The range of security types in the fund allows experienced portfolio managers to implement their best ideas across sector teams in a part of the yield curve where more opportunity for outperformance exists. Managers can also use tools, such as interest rate swaps, mainly to mitigate risk.

The result is a win-win for advisors, who have the chance to provide higher yields to clients and expand their managed assets at the same time. 

Explore VSDB

¹ Investment Company Institute as of April 30, 2025. 

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For advisors looking to implement a cash-tiering strategy, Vanguard offers an array of ETFs: 

VBIL Vanguard 0–3 Month Treasury Bill ETF

VGUS Vanguard Ultra-Short Treasury ETF

VUSB Vanguard Ultra-Short Bond ETF

VSDM Vanguard Short Duration Tax-Exempt Bond ETF

BSV Vanguard Short-Term Bond ETF

VCSH Vanguard Short-Term Corporate Bond ETF

VGSH Vanguard Short-Term Treasury ETF

^Notes:

^{For more information about Vanguard funds and Vanguard ETFs, visit vanguard.com to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.}

^{Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.}

^{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. Past performance is no guarantee of future results.}

^{Bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer’s ability to make payments.}

^{Investments in bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk.}

^{Bonds of companies based in emerging markets are subject to national and regional political and economic risks and to the risk of currency fluctuations. These risks are especially high in emerging markets.}

^{High-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.}

^{U.S. government backing of Treasury or agency securities applies only to the underlying securities and does not prevent share-price fluctuations. Unlike stocks and bonds, U.S. Treasury bills are guaranteed as to the timely payment of principal and interest.}

^{©2025 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor.}