Vanguard Ultra-Short Bond ETF’s VUSB portfolio managers have ample experience and supporting resources, but despite its low expenses, this active exchange-traded fund’s straightforward approach and general market focus don’t help it stand out from peers.
Incepted in April 2021, VUSB’s track record is short but its objectives, team, and process are the same as its sibling mutual fund, Vanguard Ultra-Short-Term Bond VUSFX, which dates to February 2015.
Comanagers Arvind Narayanan and Daniel Shaykevich bring enough experience but lack specialized ultrashort focus. The duo, who joined the ETF at inception, are well known across Vanguard’s suite of actively managed taxable bond strategies, responsible for various funds that span the yield curve and credit spectrum. A large and experienced fundamental credit research team across investment-grade corporates, high yield, structured products, and emerging markets provides fundamental analysis support. This is a team effort where effective communication and idea-sharing are key; while the comanagers are the ultimate decision-makers for the strategy, frequent inputs from the broader team help drive positioning.
A disciplined but undifferentiated approach drives the strategy’s current income and limited price volatility objectives. The strategy’s Bloomberg U.S. Treasury Bellwethers 1 Year Index doesn’t resemble the portfolio that features higher-yielding investment-grade corporates and asset-backed securities, eschewing non-investment-grade bonds. Combined inputs on the macroeconomic environment, credit and rates strategy, and sector views form the broad strokes, while the managers fill in the portfolio to their specifications. Its duration-neutral approach means the fund’s interest-rate sensitivity won’t change much, typically staying around one year. 
That makes it more rate-sensitive than peers; its duration stays near one year, longer than its typical peer that averages about a half year. Given VUSB’s limited history, its sibling Vanguard Ultra-Short-Term Bond VUSFX gives better insights into this strategy’s performance trends. Since March 2015, the fund’s first full performance month, its 1.5% annualized return through June 2023 was about median among its unique ultrashort bond Morningstar Category peers. However, its lower volatility, as measured by standard deviation, among rivals helped its better than median risk-adjusted return, as measured by Sharpe ratio.
Low fees stand out here. The ETF’s 10-basis-point annual expense ratio is far less than the peer group’s 35-basis-point average.

Analyst Rating

Low-cost, straightforward active ultra-short bond ETF.

Senior Analyst

Paul Olmsted

The team plies a disciplined but undifferentiated approach that supports the strategy’s current income and limited price volatility objectives to earn an Average Process rating. 
A collaborative process used across Vanguard’s active taxable bond complex guides the portfolio’s risk and liquidity profile. The broader fixed-income team’s combined inputs on the macroeconomic environment, credit and rates strategy, and sector views form the broad strokes. The managers then turn to sector allocations and security selection to implement their views.
An ample toolkit gives the team flexibility across sectors and credit quality, but its duration-neutral approach means the fund’s interest-rate sensitivity won’t change much, around one year and within one tenth of a year of its Bloomberg U.S. Treasury Bellwethers 1 Year Index. This benchmark, however, doesn’t resemble the portfolio that features few U.S. Treasuries and instead emphasizes higher-yielding investment-grade corporates, asset-backed securities, and emerging-markets debt. 
Corporates bonds take center stage here. Investment-grade credit typically makes up between 50% and 65% of assets, while ABS (15% to 30%), U.S. Treasuries, and other government bonds, including emerging-markets sovereign debt (0% to 10%), and cash (0% to 10%) round out the portfolio. Average credit quality is high with about two thirds in A rated and higher bonds; the remainder in BBB rated holdings, mostly corporate issuers, is normally well below its 50% limit. While it can dip into non-investment-grade debt up to 5%, this is not an oft-used tactic here. The team is sensitive to the ETF’s liquidity profile, keeping its cash and U.S. Treasury stakes around 15% of assets combined.

Average

Process

The team has ample experience and supporting resources but lacks specialized focus.
Comanagers Arvind Narayanan and Daniel Shaykevich, each of whom bring more than two decades of industry experience, joined the ETF at inception but have comanaged VUSFX since November 2019 and April 2018, respectively. Their broad range of responsibilities comanaging several other active Vanguard bond funds across the curve and credit spectrum challenges their ability to give this strategy its proper due; it earns an Average People rating.
Shaykevich, co-head of the emerging markets and sovereign debt team, joined Vanguard in 2013. Narayanan made his way over in February 2019 from State Street Global, where he was head of investment grade credit, and now co-heads Vanguard’s investment grade corporate debt team. Until recently, the team included comanager Samuel Martinez, but he took another role at the firm in the beginning of 2023; this departure should have little impact on the strategy. Alongside the comanagers, a large and experienced fundamental credit research team that spans investment-grade corporates, high yield, structured products, and emerging markets provides fundamental analysis support.
This team approach relies on effective communication and idea-sharing between the comanagers. While they are the ultimate decision-makers for the strategy, frequent inputs from the broader team, which includes credit analysts, sector leads, and rates specialists, help drive positioning. 
Alignment of interests can be better. Shaykevich has a personal stake between $50,000 and $100,000 in the strategy while Narayanan owns up to $10,000.

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 Ultra Short-Term Bond ETF

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