OREANDA-NEWS. March 14, 2016. Vanguard today launched Vanguard Core Bond Fund, a low-cost, actively managed fund that will seek to outperform the broad investment-grade1 U.S. fixed income market.

The new fund is managed by Vanguard Fixed Income Group and is available to all investors in two low-cost share classes:

Core Bond Fund

The estimated expense ratios are well below the core bond fund category average expense ratio of 0.80% (source: Lipper, a Thomson Reuters Company, December 31, 2015).

"Vanguard Core Bond Fund invests primarily in high-quality2 bonds across the investment-grade market, including Treasury, mortgage-backed, corporate, and asset-backed securities of varying yields and maturities. The fund will limit its exposure to non-investment-grade bonds to 5%," said Gregory Davis, global head of Vanguard Fixed Income Group. "We believe the fund to be well-suited for investors seeking an actively managed, high-quality, and broadly diversified holding in their fixed income portfolio."

The fund will serve as a complement to Vanguard Total Bond Market Index Fund, which also provides low-cost exposure to investment-grade bonds and broad diversification with an intermediate-term average maturity.

The Core Bond Fund, however, is actively managed and seeks to outperform the broad investment-grade U.S. fixed income market through disciplined security selection, sector allocation, and duration3 decisions. The fund will implement its long-term investment strategy after a two-week subscription period.

The fund's risk-controlled approach is expected to be differentiated from many actively managed total return funds. In addition to the 5% limit on exposure to high-yield bonds, the approach imposes tight duration constraints—generally, 0.5 years above or below the fund's benchmark, the Barclays U.S. Aggregate Float Adjusted Index.

Senior portfolio managers Gregory S. Nassour, CFA, Brian Quigley, and Gemma Wright-Casparius serve as co-portfolio managers of the Core Bond Fund. The three managers, who have a combined 71 years of investment management experience and 42 years of Vanguard experience, oversee multiple investment-grade corporate bond, Treasury, and government bond funds.

1Investment grade is a rating that indicates that the risk of default of the bonds in the portfolio is relatively low.
2High-quality bonds indicate bonds with high credit ratings that offer the highest protection for principal and interest payments.
3Duration is a measure of the sensitivity of bond—and bond mutual fund—prices to interest rate movements.

Notes:

  • All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.
  • Bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer’s ability to make such payments will cause the price of that bond to decline.