VSDB: Vanguard Launches New Short Duration Bond ETF

Vanguard debuted a new active fixed income exchange-traded fund Thursday: the Vanguard Short Duration Bond ETF (VSDB).

The fund, which has an expense ratio of 0.15% and will be managed by Vanguard's Fixed Income Group, is designed to offer investors current income and lower price volatility consistent with short-duration bonds. 

It primarily holds short-duration U.S. investment-grade bonds but has flexibility to include below-investment-grade debt and emerging markets to seek additional yield. VSDB is Vanguard’s sixth actively managed bond ETF.

Active Fixed-Income Exposure

Vanguard’s launch of an active short-duration strategy via the ETF structure underscores manager interest in launching active fixed-income products and competing on fees in a category that would have previously been the domain of more expensive mutual funds, Daniil Shapiro, director at Cerulli Associates's Product Development practice, told etf.com.

“The exposure will be most appealing to investors looking to generate income while avoiding interest rate risk—an important value proposition amidst market uncertainty,” Shapiro added. 

Short-Term Bonds in Today’s Market 

Short-term bonds, particularly those with credit risk, have a strong risk/return profile compared to most other segments of the fixed-income market, which has drawn significant investor interest over time, Rebecca Venter, senior fixed income product manager at Vanguard, told etf.com.

It's also an important category for active management, as the third-largest active fixed-income product segment, she added.

“While an inverted yield curve has led to outflows from short-term bond products to ultra-short or money market products, we expect short-term bond funds and ETFs to remain a critical allocation in investors' liquidity portfolios and an important tool to maintain attractive yield while lowering volatility in overall bond portfolios,” Venter said. “This year, amid growing market and economic uncertainty, we've begun to see flows return to active and passive short-term bond funds and ETFs.”