Vanguard Short-Term Corporate Bond Fund offers a well-constructed portfolio of short-term corporate bonds at a razor-thin expense ratio. Focusing strictly on corporate bonds should position this fund to capture market rallies better than most of its Morningstar Category peers without pushing it too far into risky territory. 
The fund tracks the Bloomberg U.S. 1-5 Year Corporate Bond Index, which provides a market-value-weighted portfolio of investment-grade corporate bonds with one to five years remaining to maturity. Eligible bonds must be denominated in U.S. dollars and have at least $300 million in outstanding face value. The index filters out certain types of bonds such as floating-rate bonds, contingent capital securities, Eurobonds without SEC registration, and bonds with equity features.
Financial services is the fund's biggest sector by a wide margin, as these firms dominate the short-term, investment-grade corporate bond market. The fund tends to invest nearly half of its assets in the financial services sector, followed by around 9% and 7% in technology and industrials, respectively.  
Many funds in this category have wider mandates that include government and securitized bonds, which the fund omits by definition. Compared to the category average, the fund consistently underweights Treasuries and agency bonds by a wide margin. This pulls its credit risk profile into more aggressive territory. The majority of its assets are invested in bonds rated BBB or A, while its peers can load up on higher-rated government bonds instead. 
The fund’s duration also runs slightly higher. It often allocates more to bonds in the three- to five-year maturity bucket than its category peers because many of them venture into ultrashort bonds instead. A longer average duration can make the fund more vulnerable to interest-rate-driven downturns. 
Nonetheless, a low fee and relatively riskier profile have helped it regularly outperform the category average so far. The fund captured much of the market’s upside when credit spreads tightened or bond yields fell, making up for its underperformance during stressful periods. The fund has outperformed the category average by 87 basis points annualized from its 2009 inception through May 2023.

Analyst Rating

A well-constructed portfolio of short-term corporate bonds.

Analyst

Lan Anh Tran

This portfolio takes on well-rewarded risks. The fund boasts a broad portfolio of short-term, investment-grade corporate bonds that look riskier than many of its category peers, but investors should be compensated accordingly. The fund earns a Process rating of Above Average.

Above Average

Process

An experienced, well-equipped team manages all of Vanguard's fixed-income index funds, underpinning an Above Average People Pillar rating.
Joshua Barrickman was named as manager in 2009. He has worked in investment management at Vanguard since 1999 and managed investment portfolios since 2005. In 2013, he was promoted to head of Vanguard’s bond index group.
Portfolio management at Vanguard is a team effort, so key-person risk is not a concern. Barrickman leads a team of sector specialists and portfolio managers along with an ETF team, which helps with ETF basket creation. These managers are supported by a team of traders who focus on execution, as well as a data team that checks incoming index data and helps the managers prepare for upcoming index changes. These teams free up time for the managers to focus on portfolio construction and index tracking. There’s also a separate risk management team that independently monitors the managers’ performance.
Vanguard aligns managers’ incentives with investors’ by tying their compensation and performance evaluation to the fund’s tracking error.

People

As The Vanguard Group settles on new senior leadership, it retains a High Parent rating.

Vanguard announced current CEO Tim Buckley will step down by the end of the year, marking an end to his 33 years at the firm. Historically, Vanguard has pronounced CEO retirements while simultaneously signaling who (from inside the firm) would take over. In this instance, Vanguard’s board said it will evaluate internal and external candidates in the coming months to find its next, and fifth, leader, though it also promoted CIO Greg Davis to president.

Vanguard flourished in several respects under Buckley’s leadership. Assets under management have grown by two thirds over his six years at the helm, while its asset-weighted average US fund fee ratcheted lower to 0.08% at the end of 2023. Vanguard further refined its advice business through its low-cost Digital Advisor platform and more holistic Vanguard Personal Advisor Services, and it debuted promising investment options.

Vanguard has had its share of challenges under Buckley, too. Growing its business outside the US has proved difficult, and ex US investors account for less than 10% of AUM. Between 2019 and 2023, Vanguard’s efforts to build its China business underwent dramatic shifts, with the firm ultimately abandoning plans to launch low-cost index funds there. It also ended a partnership with Ant Financial to provide advisory services to retail investors. Inside the US, customer service issues have continued to be a problem, and some of Vanguard’s newer offers, such as margin loans, seem a departure from a more-conservative approach to investing.

Vanguard retains an investor-friendly culture at its core that’s burnished by a commitment to low costs and supported by its unique mutual ownership structure and direct-to-investor playbook.

High

Parent

Vanguard Short-Term Corporate Bond ETF

VCSH tracks a market-weighted index of investment-grade, fixed-rate corporate bonds with maturities between 1 and 5 years.

The fund tracks a market value-weighted index of US investment grade, fixed-rate corporate bonds with maturities between 1 and 5 years.

Vanguard Short-Term Treasury ETF

Vanguard Tax-Exempt Bond Index ETF

Even if higher-for-longer interest rates are applying downward pressure on bond prices — and conversely, upward pressure on yields — bonds still look enticing. Vanguard has a few bond-focused exchange-traded funds (ETFs) that are worth considering.

Bonds Look Enticing Even If Rate Cuts Come Later Than Expected

Vanguard Long-Term Corporate Bond ETF

Vanguard Total Corporate Bond ETF

The demand for corporate bonds is extending beyond the need for yield. As credit quality conditions improve for corporate bonds, they also offer credit risk mitigation in tandem with higher yield versus safe haven government debt.

Higher Credit Quality Increases Demand for Corporate Bonds

Vanguard Short-Term Bond ETF

In the parlance of capital markets, the higher-for-longer phrase has yet to dissipate. The economy continues to run hot and yields rise.

2 Bonds ETF Options to Ponder as Rate-Cut Expectations Fade

Short-term bonds can offer the investor an ideal way to mitigate credit risk via an investment-grade focus while also reducing the rate risk that longer-term bond offerings can carry. That said, Vanguard has three options worthy of considering to get short-term bond exposure.

Mitigate Credit and Rate Risk With These 3 ETF Options

Vanguard Intermediate-Term Corporate Bond ETF

The risk-on sentiment in equities could also be permeating into bonds. According to Reuters, more investors are willing to take on credit risk to attain yield, but there are other exchange-traded fund (ETF) options to consider.

Here's a Long-Term, Higher-Quality Option for Yield

With the U.S. Federal Reserve recently standing pat on interest rate hikes, bets on rate cuts are dissipating as the data-dependent central bank seeks more confirmation before loosening monetary policy. In the meantime, it's helping to fuel spikes in short-term yields.

Unwinding of Rate Cut Bets Are Elevating Short-Term Yields

Vanguard Short-Term Corporate Bond ETF is a fixed-income ETF with $42.8 billion in AUM and a low volatility profile. The fund is overweight A and BBB corporate bonds and provides exposure to the short-term investment-grade U.S. corporate bond market. The predicted 12-month return for VCSH is 6%, with a potential drawdown of -1.6% from credit spreads widening.

VCSH: This Bond Fund Looks Attractive

Vanguard Total Bond Market ETF

A data-dependent Federal Reserve is keen to hold interest rates until it gets additional confirmation inflation is cooling. This could keep the window open for prospective bonds investors seeking value opportunities.

With Rate Cuts on Hold, Bonds Could Be Offering Value

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While 2023 was the year of Fed rate hikes, the fixed income market is expecting 2024 to be the year of rate cuts. At the December 2023 meeting, the Federal Reserve's own guidance was for three 25 basis point reductions in 2024.

Advisors More Conservative About Rate Cuts

The anticipation of rate cuts to come this year is making for a busy bond month to start 2024. Now, regional banks are adding to corporate bond sales, according to data from Bank of America.

January to be Busiest Month for Bond Sales in 7 Years

Vanguard ESG U.S. Corporate Bond ETF

With the prospect of rate cuts this year, companies are feeling emboldened to issue new debt. As such, fixed income investors have myriad opportunities to get exposure via corporate bond ETFs.

Record Issuance Opens Opportunities in Corporate Bond ETFs

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Wall Street witnessed an upbeat Q4 due to moderation in inflationary pressures, the likelihood of Fed rate cuts in 2024 and decent corporate earnings.

ETF Asset Report of Q4

Federal Reserve rate hikes have led to higher yields on bonds and fixed-income securities. VCSH offers slightly higher income with slightly higher risk than T-bills. An overview of the fund follows.

VCSH: Good Short-Term Bond ETF, But Better Choices Out There

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The S&P 500 has rallied in recent days and was up close to 20% for the year. However, heading into 2024, many advisors are exploring a range of investment ideas that offer exposure beyond the stock market.

Chart of the Week: What Alternatives Are Worthy of Attention?

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After a downbeat September, October, too, remained depressed for Wall Street. S&P 500 and U.S. treasuries hauled in maximum assets in the month.

ETF Asset Report for October: S&P 500 & Treasuries Top

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Back-to-back years of celebration for VettaFi's research! Last week, VettaFi received the Best U.S. ETF Research award from ETF Express, a dedicated ETF news outlet, at an awards reception in New York.

VettaFi Repeats as Best ETF Research Award Winner

While the U.S. bond market continues to show signs of struggle this year, investors should still hold fixed income ETFs. For one thing, prices are down while yields are up.

Target Short- and Intermediate-Term Bonds ETFs

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Advisors have choices to face with their fixed income allocation. Should they take on credit risk to be rewarded with a high level of income?

Chart of Week: Advisors Prefer Short-Term High-Quality Bonds

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Fixed-income investors looking for interest rate cuts from the Federal Reserve are still waiting, but that hasn't stopped low-rated bonds from posting strong gains in 2023. Bond investors hoping for encouraging signals from the Federal Reserve that its policy of raising interest rates was ending received mixed news yesterday.

Bank Loans And Junk Bonds Are Having A Good Year

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For many, social security isn't enough to fund their retirement needs. Bonds can help produce another income stream.

Best Bonds For Income

Vanguard Short-Term Corporate Bond Index Fund ETF Shares is a good option for investors looking to park their cash temporarily in a low-risk vehicle. The fund invests in a well-diversified basket of almost 2,500 corporate bonds with an average yield of 5.5% and average duration of 2.7 years. The fund's holdings are mostly rated AA, A, or BBB, with a low risk of default, and the majority of the bonds will mature within 1 to 4 years.

VCSH Could Be A Good Place To 'Park Cash'

Fixed income investors are undoubtedly hoping that the current consensus regarding the Federal Reserve not raising interest rates for the remainder of this year proves true. The July reading of the Consumer Price Index (CPI) appears to imply the central bank might just have that latitude.

VCSH: Short, Sweet, and Quality

The first half of 2023 saw rising yields work in favor of fixed income funds, according to data from Morningstar. This could pave the way for further strength in bond exchange traded funds (ETFs).

Yields Attracted Fixed Income Investors During First Half of 2023

With the markets expecting interest rates to fall, the bond market may see more upside, including corporate bonds. Those haven't gotten much attention in various parts of the globe, according to research by Fisch Asset Management.

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With the Fixed Income Symposium taking place on Monday, July 24, the VettaFi Voices gathered at the water cooler to discuss the current state of fixed income markets.

News for Vanguard Short-Term Corporate Bond ETF ETF (VCSH)