Vanguard Launches Total Corporate Bond ETF (VTC)

[43210]

New fund
Vanguard Total Corporate Bond ETF (VTC)
https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0985

"Vanguard Announces Plans To Launch Total Corporate Bond ETF"
https://pressroom.vanguard.com/news...Plans-To-Launch-Total-Corporate-Bond-ETF.html

"Vanguard adds a new ETF to its "total" product line up"
https://institutional.vanguard.com/...researchcommentary/article/NewsInstInfo110917

It's an all-duration investment-grade corporate bond fund. ETF only, no mutual fund. It's actually just a blend of Vanguard's three maturity-based corporate bond ETFs: Vanguard Short-Term Corporate Bond ETF (VCSH), Vanguard Intermediate-Term Corporate Bond ETF (VCIT), and Vanguard Long-Term Corporate Bond ETF (VCLT). (Don't know how the composition is determined.)

Could be a good fund if you think the "classic" Vanguard Total Bond Market (BND,VBTLX,VBMFX) has too much treasuries but you want all durations in one fund.

 

[pb4uski]

If/when interest rates normalize and interest rate risk is less of a concern, this could be a good option for me over Total Bond, which is too overweighted in full faith and credit issues for my liking. With this and Total Bond I could dial in the composition of investment grade corporates in relation to full faith and credit to my liking.

 

[pn3069]

I see that the effective duration for this ETF will be in the intermediate term range but it is unclear how that compares to VCIT in terms of duration, and what plus/minus are versus buying VCIT.

Any thoughts from this forum?

 

[pn3069]

Me thinks: this offering allows them to ride rising interest rates and replace ST bonds as they mature with those yielding higher while at the same time squeeze a bit more yield with the LT bonds.

Likewise, they can ride dropping interest rates as well... is this an all-weather offering?

Thoughts?

 

[43210]

It's simply a mix of VCSH, VCIT, VCLT, all-duration, intermediate-on-average, not purely intermediate, just like Total Bond is, but only investment-grade corporates.

It just gives a way of tilting more towards corporates than Total Bond, without also tilting duration (or buying a combination of VCSH, VCIT, VCLT separately).

I'd prefer a mutual fund that held the bonds directly (so not so much trading under the surface). I'd also prefer higher rates of course,

 

[pb4uski]

Why would it make a difference to you if they held bonds directly vs a fund of funds as long as the total ER was the same?

 

[foxfirev5]

Why would it make a difference to you if they held bonds directly vs a fund of funds as long as the total ER was the same?

I'm skeptical that the .07 ER of this fund of funds reflects the actual expenses of both this fund and the underlying funds. If it does, the three underlying funds should have a lower ER. Perhaps a high finance expert can comment.

 

[pb4uski]

You're kidding, right? Each of the underlying ETFs has a .07 ER.

	Vanguard Short-Term Corp Bond ETF	Vanguard Inter-Term Corp Bond ETF	Vanguard Long-Term Corp Bond ETF	Vanguard Total Corporate Bond ETF
Symbol	VCSH	VCIT	VCLT	VTC	—
Asset class	Bond	Bond	Bond	Bond	—
Category	Short-Term Bond	Intermediate-Term Bond	Long-Term Bond	Intermediate-Term Bond	—
Risk potential					—
Expense ratio	0.07%	0.07%	0.07%	0.07%	—

Math IS hard!

 

[foxfirev5]

You're kidding, right? Each of the underlying ETFs has a .07 ER.

	Vanguard Short-Term Corp Bond ETF	Vanguard Inter-Term Corp Bond ETF	Vanguard Long-Term Corp Bond ETF	Vanguard Total Corporate Bond ETF
Symbol	VCSH	VCIT	VCLT	VTC	—
Asset class	Bond	Bond	Bond	Bond	—
Category	Short-Term Bond	Intermediate-Term Bond	Long-Term Bond	Intermediate-Term Bond	—
Risk potential					—
Expense ratio	0.07%	0.07%	0.07%	0.07%	—

Math IS hard!

Math might be hard but they are still managing one more fund. I do agree I'm splitting hairs and that it will work if they net more funds to cover the costs. Either way the competition for LQD is good for everyone out here.

 

[pb4uski]

I'm confident that the incremental cost of managing one more fund (the VTC fund of funds) gets lost in rounding the computed ER to 4 decimal places.... 0.0007 = 0.07%.

 

[43210]

Why would it make a difference to you if they held bonds directly vs a fund of funds as long as the total ER was the same?

It seems like there would be more trading under the surface. Instead of a bond sitting in the fund it's whole life, it would need to be sold by one sub-fund and bought by another as it goes from long to intermediate to short. I'd think this trading activity would add a little friction, reducing returns (and not reflected in ER).

 

[pb4uski]

No more than exists today with 3 separate funds that have been in existence for many years.... I think you are overthinking it.

 

[foxfirev5]

It seems like there would be more trading under the surface. Instead of a bond sitting in the fund it's whole life, it would need to be sold by one sub-fund and bought by another as it goes from long to intermediate to short. I'd think this trading activity would add a little friction, reducing returns (and not reflected in ER).

Thanks. In addition I'm wondering how this is subsidized by the mutual fund shares which have a .25 and 1.00 purchase fee for IT and LT funds.

 

[MRG]

i'm confident that the incremental cost of managing one more fund (the vtc fund of funds) gets lost in rounding the computed er to 4 decimal places.... 0.0007 = 0.07%.

+1.0001.

 

[foxfirev5]

DW just reminded me this discussion amounts to .0001% of the first night of our next hotel stay. I apologize for my minutia. Now I'm working on her to get a few bucks off the 5 star accommodations.

 

[MRG]

DW just reminded me this discussion amounts to .0001% of the first night of our next hotel stay. I apologize for my minutia. Now I'm working on her to get a few bucks off the 5 star accommodations.

Don't apologize.

You made me think about the how and why. I used to be employed in the industry and had a great trip down memory lane.

Enjoy your stay.

 

[foxfirev5]

Thanks. I need a little perspective periodically.

 

[pn3069]

Does anybody know what the current mixture of the underlying ETFs is in VTC?

 

[pb4uski]

Nothing available yet to my knowledge.

 

[BeachOrCity]

Kind of surprised people are ok putting long term duration in their bond mix at this point in the cycle?

 

[pn3069]

Kind of surprised people are ok putting long term duration in their bond mix at this point in the cycle?

VTC's effective duration is still intermediate.. so it is very comparable to VCIT in terms of duration.

Where I think it differs is in spreading the interest rate risk among 3 discrete funds with different durations.

Benefit? you might ask. The short-end of bonds allows quicker replacement with higher (in rising rates) yielding corp bonds while the longer-end of bonds provides a kicker of yield. It is akin to rope walking with a long pole in the hands, makes it easier for the index manager to respond to interest rate policy.

Until Vanguard publishes the internal allocation of VTC, it is hard to definitively say..

 

[audreyh1]

Kind of surprised people are ok putting long term duration in their bond mix at this point in the cycle?

It wil be an intermediate duration fund overall, just like Total Bond Index, since it has short as well as long duration securities. Go look at distribution by effective maturity for any core bond fund sometime.

 

[43210]

Found it!
https://advisors.vanguard.com/iwe/pdf/FASVTCPB.pdf

VTC = 37%*VCSH + 31%*VCIT + 32%*VCLT
"... allocations will vary"