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Vanguard Short-Term Corporate Bond ETF

The fund employs an indexing investment approach designed to track the performance of the Bloomberg Barclays U.S. 1-5 Year Corporate Bond Index. This index includes U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities between 1 and 5 years. Under normal circumstances, at least 80% of the funds assets will be invested in bonds included in the index.

Vanguard Short Term Corporate Bond ETF

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Several of this year&#39;s top asset-gathering fixed income exchange traded funds are of the low or ultra-low duration varieties, indicating investors&#39; preference for bonds that are less sensitive to rising interest rates.
A new ETF courtesy of IndexIQ, a unit of New York Life Investments Company, seizes upon that theme.
<h3>What Happened</h3>
The IQ Short Duration Enhanced Core Bond U.S ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/sdag#NYSE">SDAG</a>) debuted Tuesday as <a href="https://www.benzinga.com/trading-ideas/long-ideas/18/12/12849931/indexiq-brings-a-new-look-to-international-equities">the second new ETF</a> introduced by IndexIQ over the past week. SDAG follows the IQ Short Duration Enhanced Core Bond U.S. Index, a benchmark comprised of other ETFs.
The fund is IndexIQ&#39;s first short duration ETF and its sixth fixed income ETF. IndexIQ launched its first bond ETF over two and a half years ago.
<h3>Why It&#39;s Important</h3>
The ETFs comprising SDAG&#39;s lineup include short-term Treasury funds, floating rate note products and short-term corporate bond ETFs. SDAG&#39;s largest holding is the Vanguard Short-Term Corporate Bond ETF (NASDAQ:VSCH). The $20.6 billion VCSH, which has an average duration of 2.7 years, commands 34.49 percent of SDAG&#39;s weight.
The Schwab Short-Term U.S. Treasury ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/scho#NYSE">SCHO</a>) is SDAG&#39;s second-largest holding at a weight of almost 28 percent. The $3.8 billion SCHO has an effective duration of 1.93 years.
&quot;After several years of abnormally low rates, we once again find ourselves in a rising rate environment, a situation where investors often move to the shorter end of the yield curve,&rdquo; said Index IQ Chief Investment Officer Salvatore Bruno <a href="https://www.nylinvestments.com/IQetfs/etfs/IQ-Short-Duration-Enhanced-Core-Bond-U.S.-ETF">in a statement.</a> &ldquo; By combining short duration exposure with a momentum-driven approach, investors now have a powerful tool for gaining exposure to this key area of the fixed income market while also adding the potential for outperformance.&rdquo;
<h3>What&#39;s Next</h3>
SDAG&#39;s holdings are dynamically allocated based on 45- and 90-day momentum signals. The new ETF can include short-term high-yield debt. Two of SDAG&#39;s eight holdings are short-duration junk bond funds. Those ETFs combine for nearly a quarter of SDAG&#39;s weight.
SDAG charges 0.36 percent per year, or $36 on a $10,000 investment.
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Vanguard is the second-largest U.S. issuer of exchange traded funds by assets, but its stable of ETFs is small compared to issuers of a similar size. While many large ETF issuers launch several new products per year or have launches numbering in the double digits, Vanguard eschews that strategy.
When Vanguard launches new ETFs, they are usually successful and often attain that success in short order. Time will tell if that&#39;s the case for the Vanguard Total Corporate Bond ETF (NASDAQ: VTC), which debuted Thursday as Vanguard&#39;s first ETF of 2017.
The Vanguard Total Corporate Bond ETF is the first new ETF introduced by Pennsylvania-based Vanguard since the firm launched the Vanguard International Dividend Appreciation ETF (NASDAQ: <a class="ticker" href="/stock/vigi#NASDAQ">VIGI</a>) and the Vanguard International High Dividend Yield ETF (NASDAQ: <a class="ticker" href="/stock/vymi#NASDAQ">VYMI</a>) a year-and-a-half ago.
<h3>
	Good Timing</h3>
Some new ETFs benefit from good timing, and that could be the case with the Vanguard Total Corporate Bond ETF. Investors are flocking to investment-grade corporate bond ETFs this year, with two such funds being among this year&#39;s top 10 asset-gathering ETFs. That duo includes the Vanguard Intermediate-Term Corporate Bond ETF (NASDAQ: <a class="ticker" href="/stock/vcit#NASDAQ">VCIT</a>).
VTC, the new Vanguard ETF, tracks the Bloomberg Barclays U.S. Corporate Bond Index. The new ETF charges 0.07 percent per year, or $7 on a $10,000 investment, making it less expensive than 91 percent of rival funds, <a href="https://personal.vanguard.com/us/funds/snapshot?FundId=0985&amp;FundIntExt=INT#tab=0">according to issuer data</a>.&nbsp;
VCT is the 17th fixed income ETF in Vanguard&#39;s lineup. In addition to the new ETF and the aforementioned VCIT, Vanguard&#39;s corporate bond ETFs include the Vanguard Short-Term Corporate Bond ETF (NASDAQ: <a class="ticker" href="/stock/vcsh#NASDAQ">VCSH</a>) and the Vanguard Long-Term Corporate Bond ETF (NASDAQ: <a class="ticker" href="/stock/vclt#NASDAQ">VCLT</a>).
<h3>
	Broad Exposure</h3>
As is usually the case with Vanguard ETFs, VCT features a massive roster. By using an ETF-of-ETFs structure that equates to VCT holding the other Vanguard corporate bond ETFs mentioned here, the new fund has one of the largest number of components among any corporate bond fund.
&ldquo; The ETF-of-ETFs structure enables the fund to immediately access more than 5,500 U.S. corporate bonds by taking advantage of the existing exposure and scale offered by the underlying ETFs,&rdquo; <a href="https://pressroom.vanguard.com/news/Press-Release-Vanguard-Launches-Total-Corporate-Bond-Fund-110917.html">according to a statement</a> issued by Vanguard. &ldquo;This approach achieves near complete replication of the benchmark at the fund&rsquo;s inception as well as tighter bid/ask spreads and lower operating expenses than investing directly in the benchmark&rsquo;s constituents.&rdquo;&nbsp;
With over 5,500 holdings, VCT&#39;s roster is roughly triple the size of the largest investment-grade corporate bond ETF.
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Vanguard's First New ETF Of 2017 Is A Corporate Bond Fund

One of the primary reasons investors have embraced exchange-traded funds over the years is lower fees relative to actively managed equivalents. ETF issuers continue rewarding that faith with a &ldquo;race to the bottom&rdquo; outlook on ETF expenses.
Predictably, Vanguard plays a big role in the trend of lower ETF fees, and after a recent spate of fee cuts from rival issuers, the Pennsylvania-based fund giant is again making its low fee presence felt.
On Thursday, Vanguard, the second-largest U.S. ETF issuer, announced fee reductions on 35 mutual fund classes, including 11 ETFs. But before we get to that good news, there is some bad news ... sort of.
<h3>Fee Raise</h3>
Vanguard slightly raised the annual expense ratio on the Vanguard Health Care ETF (NYSE: <a class="ticker" href="/stock/vht#NYSE">VHT</a>) to 0.1 percent from 0.09 percent. Fidelity, one of Vanguard&#39;s chief competitors, offers the ETF industry&#39;s<a href="http://www.benzinga.com/trading-ideas/long-ideas/16/10/8556957/fidelity-has-a-say-in-etf-fee-tussle"> least expensive lineup</a> of sector ETFs.
<h3>Fee Cuts</h3>
The 11 ETF fee cuts unveiled by Vanguard include a significant portion of the issuer&#39;s fixed income lineup. All of the following saw annual fees reduced to 0.07 percent from 0.1 percent:
<ul>
<li>Vanguard Extended Duration Treasury ETF (NYSE: <a class="ticker" href="/stock/edv#NYSE">EDV</a>).</li>
<li>Vanguard Intermediate-Term Bond ETF (NYSE: <a class="ticker" href="/stock/biv#NYSE">BIV</a>).</li>
<li> Vanguard Intmdte Tm Govt Bd ETF (NASDAQ: <a class="ticker" href="/stock/vgit#NASDAQ">VGIT</a>).</li>
<li>Vanguard Long Term Corporate Bond ETF (NASDAQ: <a class="ticker" href="/stock/vclt#NASDAQ">VCLT</a>).</li>
<li>Vanguard Lg Term Govt Bd ETF (NASDAQ: <a class="ticker" href="/stock/vglt#NASDAQ">VGLT</a>).</li>
<li>Vanguard Mortgage Bkd Sects ETF (NASDAQ: <a class="ticker" href="/stock/vmbs#NASDAQ">VMBS</a>).</li>
<lI>and the Vanguard Short Term Corporate Bond ETF (NASDAQ: <a class="ticker" href="/stock/vcsh#NASDAQ">VCSH</a>).</li>
</ul>
Three of Vanguard&#39;s mega-cap equity ETFs now sport annual expense ratios <a href="https://pressroom.vanguard.com/nonindexed/Fact-sheet-first-wave-expense-ratio-changes-122216.pdf">of 0.07 percent</a>, down from 0.09 percent. Those ETFs are the Vanguard Mega Cap ETF (NYSE: <a class="ticker" href="/stock/mgc#NYSE">MGC</a>), Vanguard Mega Cap 300 Growth Index ETF (NYSE: <a class="ticker" href="/stock/mgk#NYSE">MGK</a>) and the Vanguard Mega Cap Value Index ETF (NYSE: <a class="ticker" href="/stock/mgv#NYSE">MGV</a>).
<h3>Fee Wars</h3>
&ldquo;In 2004, when Vanguard managed $6 billion in ETF assets, the average expense ratio for Vanguard&rsquo;s ETFs was 0.22 percent. Today, Vanguard manages $593 billion in U.S. ETF assets. The average expense ratio of the firm&rsquo;s ETFs is 0.12 percent, or less than one-third that of the 0.53 percent industry average,&rdquo; said Vanguard<a href="https://pressroom.vanguard.com/news/Press-release-VG-announces-first-wave-expense-ratio-changes-12-22-16.html"> in a statement</a>.
Vanguard&#39;s latest fee cuts answer <a href="https://www.benzinga.com/trading-ideas/long-ideas/16/12/8824318/blackrock-fee-cuts-extend-into-smart-beta-realm">two such moves </a>this year, including one this month, by rival BlackRock, Inc. (NYSE: <a class="ticker" href="/stock/blk#NYSE">BLK</a>) and one fee reduction announcement by Charles Schwab Corp (NYSE: <a class="ticker" href="/stock/schw#NYSE">SCHW</a>).

Many investment pros swear by the concept of diversifying their investments, not only across various sectors but asset classes &mdash; especially corporate bonds.
Here is how investors can invest directly in corporate bonds.
As a reminder, a corporate bond is as its name implies: a bond issued by a corporation. In essence, the corporation borrows money from the investor to fund part of its operation or enter a new market in exchange for repayment of the principle (also known as the face value) plus a certain amount of interest, which varies from company to company and is typically paid to the investor every six months.
Other types of bonds available for investors are issued by government entities ranging from the federal to municipal lender.
Investors who want to purchase corporate bonds can do so quite easily if the bond trades on the over-the-counter (OTC) market. This can be done through a standard brokerage account, which many investors already use for their investments in stocks.
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/08/8371533/shorts-are-running-to-cover-some-of-this-etfs-holdings">Shorts Are Running To Cover Some Of This ETF's Holdings</a></bzrelatedlink>
Bond prices are quoted as percentage of its face value with $100 being the benchmark. For example, a bond trading at 90 implies it could be purchased for 90 percent of its face value &mdash; a $10,000 bond could be bought by an investor for $9,000.
Regardless of the trading price of the bond, the interest payment stays the same.
Bottom line, corporate bonds offer an attractive alternative to investing in stocks given the consistent interest payments. However, there are many stocks that offer investors a similar percentage payout through the form of dividends. As is always the case, novice investors should seek out the expertise of a trusted financial adviser before making any commitments.
<h3>A Few ETFs In The Space</h3>
<ul>
<li>iShares Barclays 1-3 Year Credit Bond Fd (NYSE: <a class="ticker" href="/stock/csj#NYSE">CSJ</a>).</li>
<li>iShares IBoxx $ Invest Grade Corp Bd Fd (NYSE: <a class="ticker" href="/stock/lqd#NYSE">LQD</a>).</li>
<li>Vanguard Short Term Corporate Bond ETF (NASDAQ: <a class="ticker" href="/stock/vcsh#NASDAQ">VCSH</a>).</li>
<li>Vanguard Intermediate Tm Cpte Bd ETF(NASDAQ: <a class="ticker" href="/stock/vcit#NASDAQ">VCIT</a>).</li>
</ul>
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Natixis&rsquo; Patrick Artus broke down the bond bubble&rsquo;s effect on economic conditions and what it could do in the future. &ldquo;A bond bubble (abnormally low long-term interest rates) has become the main monetary policy tool in OECD countries,&rdquo; said the analyst.

	Proponents of the central bank policy often point out the &ldquo;effects of very low interest rates on the economy&rdquo; such as:
<ul>
<li>
		Boosting credit</li>
<li>
		Increased corporate and housing investment</li>
<li>
		Lowering interest rates paid by borrowers</li>
</ul>

	The analyst reaffirmed these claims made by central banksmen, but warned of a dreadful trade off. &ldquo;One must remember that a bubble is always positive, as long as it does not burst&hellip; the problem is that it will burst and there will then be a financial crisis,&rdquo; said Artus.

	The Natixis analyst cited two reasons why the central banks use of a bond bubble was:

	1.) Either the bond bubble will explode in the future; leading to a financial crisis

	2.) Or central banks will be forced to forever conduct highly expansionary monetary policies to prevent the bubble from bursting

Natixis On Bonds: 'No One Denies A Bond Bubble Boosts The Economy - As Long As It Doesn't Burst'

Interest rates have stabilized significantly this year from their tremendous rise in 2013.

	However, many investors believe that yields will ultimately move much higher. 

	The combination of the Federal Reserve tapering their asset purchase programs along with an eventual tightening of the Fed funds rate may significantly alter the landscape for fixed-income investors. 

	Fortunately, there are a variety of strategies that can be implemented to hedge exposure or even profit from the effects of rising interest rates.

	One potential move to consider is shortening the average duration of your bond portfolio in order to reduce price sensitivity to interest rates. An ETF such as the Vanguard Short-Term Grade Corporate Bond Fund (NASDAQ: <a class="ticker" href="/stock/vcsh#NASDAQ">VCSH</a>) holds a basket of investment grade debt of highly-rated companies with durations between one to three years.

	This fund will not experience the same level of price volatility that an intermediate-duration fund such as the iShares Investment Grade Corporate Bond Fund (NYSE: <a class="ticker" href="/stock/lqd#NYSE">LQD</a>) will if interest rates significantly rise. The trade-off is that VCSH only pays a yield of 1.39 percent, while LQD currently yields 3.26 percent.

	See also: <a href="http://www.benzinga.com/etfs/sector-etfs/14/04/4441426/momentum-etf-seeks-high-beta-stocks">Momentum ETF Seeks High Beta Stocks</a>

	Another strategy to consider is investing in an ETF that has built-in interest rate hedges such as the ProShares Investment Grade - Interest Rate Hedged ETF (BATS: IGHG). This fund is designed to be long corporate bonds and short treasury notes of similar durations in order to remove or dampen the effect of interest rate fluctuations on the portfolio.

	In theory, the construction of this index should help smooth out volatility when compared to a traditional basket of bonds. However, fluctuations in the yield curve may still lead to some spillover that can’t be perfectly addressed in every situation. 

	The final and most aggressive strategy is to consider a rising rate ETF such as the ProShares Short 20+ year Treasury Bond ETF (NYSE: <a class="ticker" href="/stock/tbf#NYSE">TBF</a>). This fund is designed to provide -1x price correlation to a basket of long-duration treasury bonds on a daily basis. Think of it as the inverse of the popular iShares 20+ Year Treasury Bond ETF (NYSE: <a class="ticker" href="/stock/tlt#NYSE">TLT</a>). 

	Rising rate ETFs have become more popular in recent years as investors have used them to hedge off their existing fixed-income holdings or as a pure play on the direction of Treasury yields.

	The advantage is that you get direct correlation and targeting to a specific area of the yield curve depending on the ETF that you select. There are a variety of options from both ProShares and DirexionShares that may fit your portfolio characteristics or risk tolerance. 

	With these tools, investors can ultimately be prepared to weather any storm that interest rates throw their way.

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David JoyceHouse (R-OH)	$15K - $50K	etf	Purchase	Aug 06, 2024	Jul 14, 2022	House
David JoyceHouse (R-OH)	$1K - $15K	etf	Sale	Jun 09, 2022	May 17, 2022	House

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