Vanguard Expands Fixed-Income Menu with 3 Treasury ETFs

Apparently, Vanguard is looking to spend some quality bonding time with clients.

Last week, the world’s second-largest asset manager launched three government bond ETFs: the Vanguard Government Securities Active ETF (VGVT), the Vanguard Total Treasury ETF (VTG) and the Vanguard Total Inflation-Protected Securities ETF (VTP). That brings the total number of fixed-income ETFs it has launched this year to nine.

Vanguard isn’t alone in its efforts. Across the industry, issuers are racing to launch fixed-income products as the market environment becomes more fertile for bonds and Treasurys. “Just about every asset manager is pushing into fixed-income,” said Daniel Sotiroff, senior analyst for Morningstar, adding that fixed-income is a massive trend but isn’t talked about as much as active or options-based income strategies.

Fixer Upper

Fixed-income products have been a priority for the firm since Tim Buckley’s tenure as CEO, but up until recently, the opportunity just wasn’t there for those kinds of ETFs, Sotiroff told Advisor Upside. “It’s hard to sell a product when short-term yields are at near 0% like they were for much of the 2010s,” he said. 

Today, however, interest rates are hovering near the historical average and equity markets are volatile, creating “a period where fixed-income has reemerged as a valuable diversifier in a balanced portfolio,” according to Sam Martinez, senior fixed-income product manager at Vanguard. The firm’s latest fixed-income ETFs include one actively managed product and two index funds:

• VGVT has about 60% of its portfolio exposed to US Treasurys, while roughly 35% is allocated to agency-backed securities. It has an expense ratio of 0.1%.
• VTG tracks the Bloomberg US Treasury Total Return Unhedged USD Index and has exposure to short-, intermediate- and long-term maturities. Its expense ratio is 0.03%.
• VTP attempts to mitigate inflation risk by investing in US TIPS securities across the yield curve. It has an expense ratio of 0.05%.

“Client value is our motivation for building out our fixed-income lineup,” Martinez said, adding that nine funds Vanguard has launched this year have garnered more than $2 billion in assets. 

And They’re Off! Asset managers have launched nearly 80 fixed-income ETFs this year alone. While the list of issuers includes industry giants like Goldman Sachs and BlackRock, it also features smaller names like Stone Ridge Asset Management, Bluemonte and Cohen & Steers. “Everybody’s been throwing their hat into the ring,” Sotiroff said.