Vanguard to Roll Out Short-Duration Active Bond ETF

The Vanguard Group is expanding its active management footprint with a new short-duration bond ETF that is slated to launch by April.

The Malvern, Pennsylvania-based asset manager has filed with the Securities and Exchange Commission for the Vanguard Short Duration Bond ETF (VSDB).

In terms of portfolio positioning, VSDB will have an average duration of 2.9 years and is designed to fit between a core bond fund and an ultra-short-term bond fund, according to Sam Martinez, Head of Active Fixed Income Product at Vanguard.

“This ETF will come with reasonable yield and income without extending duration excessively,” he said, adding that the “slightly longer average duration” will be better suited for long-term investors.

Vanguard’s Active Management Push

VSDB, which will have an expense ratio of 0.15%, represents the latest example of Vanguard’s expansion into actively managed ETFs.

“Vanguard continues to tiptoe into the active ETF space, where the issuer has seen limited success,” said Sumit Roy, senior ETF analyst at etf.com. “The firm's total AUM across active ETFs is less than $9 billion, a small fraction of the $3 trillion it has across all ETFs.”

In terms of the timing of the active bond ETF, Martinez said it isn’t pegged to any particular point in the market or economic cycle.

“We think very long term and very strategically,” he said. “We want to ensure investors have the best tools available to them for their long-term investing needs.”

According to Vanguard’s announcement, the new exchange-traded fund will offer diversified exposure to primarily short-duration U.S. investment-grade bonds, including some exposure to structured products such as asset-backed securities, with the flexibility to invest in below-investment-grade debt and emerging markets for additional yield.

Regarding Vanguard’s reputation as a low-cost passive management shop, Martinez pushed back, emphasizing that “our team is a very capable active manager," adding, "It makes sense for Vanguard to bring our capabilities to the active ETF space."