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Vanguard Multi-Sector Income Bond & Core-Plus Bond Funds in registration
These funds will be managed by Vanguard's bond team.
Investment Advisor The Vanguard Group, Inc. (Vanguard) Portfolio Managers Michael Chang, CFA, Portfolio Manager at Vanguard. He has co-managed the Fund since its inception in 2021. Arvind Narayanan, CFA, Portfolio Manager at Vanguard. He has co-managed the Fund since its inception in 2021. Daniel Shaykevich, Portfolio Manager and Principal at Vanguard. He has co- managed the Fund since its inception in 2021.
It sure took Vanguard a long time to offer active core-plus and multisector funds! Since I'm not a fan of most passive bond funds, this is a welcome development. Three comanagers of the new core-plus fund also currently manage VCOBX. They've done a decent job (vs. intermediate core bond funds) during their short tenure.
This is of interest to me, but I am suspect of Vanguard's investing approach. They are a traditional "passive" investing firm, dependent on very low management fees, which is not a glowing basis for more active management of multisector and core plus. You can certainly offer a fund that meets categorical definitions, but if this is just another passive management fund, using indexes and existing funds, that does not excite me as a potential investment.
It's not quite clear what you mean by "traditional passive investing firm dependent on very low management fees". Vanguard's Primecap funds come with lower management fees than Primecap Odyssey funds, yet they are managed similarly (after allowing for the fact that the Vanguard funds are larger). Lower fees does not mean less active management.
Regarding Vanguard's bond funds, I would agree that Vanguard tends to manage its funds more conservatively (even VWEHX, though that is outsourced to Wellington). Here, Vanguard relies, or if you prefer, "depends" upon its lower fees to compensate for sometimes less than inspired management.
To be clear, its actively managed bond funds are not managed by its quant or index teams. All twelve of its index bond funds are managed by Joshua C. Barrickman, who has no hand in Vanguard's actively managed funds.
Most of the active taxable, non-government (i.e. not Treasury, TIPS, etc.) funds (VGCAX, VCOBX, VIITX, VFICX, VFSTX, VUSFX, VWESX) are managed at least in part by Samuel C. Martinez, Daniel Shaykevich and Arvind Narayanan, a completely different team.
Two of these managers, Shaykevich (foreign debt) and Narayanan (IG corporate) are managing the new funds. Shaykevich is also the lead manager on VEMBX. A few years ago Chang came over from Goldman Sachs where he ran a HY fund.
To some extent I agree with what I think you may be saying. Cost is almost everything in IG bond funds, passive or active. As one moves down the credit scale or otherwise into less "conventional" arenas, bonds tend to correlate more with equities. Cost is still important, but as with equities, investment approaches and skills play a bigger role. That doesn't seem to be Vanguard's strength; it could have outsourced these funds as it did with VWEHX.
This is of interest to me, but I am suspect of Vanguard's investing approach. They are a traditional "passive" investing firm, dependent on very low management fees, which is not a glowing basis for more active management of multisector and core plus. You can certainly offer a fund that meets categorical definitions, but if this is just another passive management fund, using indexes and existing funds, that does not excite me as a potential investment.
Vanguard is often overlooked as an "active" investing firm. They managed over $1.6 trillion in active assets as of December 31, 2020. Vanguard was the third-largest manager of actively managed assets as of September 30, 2019.
I don't "overlook" Vanguard, but until they demonstrate some skill sets in the NonTraditional, Multisector bond, and Intermediate Core Plus categories, where you are challenged to move between varying sectors of bonds in the portfolio of a given fund, challenged to employ more sophisticated strategies (hedging, shorting, derivatives, etc.), and show more skill sets in changing fund assets to meet changing market conditions, etc., I don't find much from them that are top options than what is available through companies like PIMCO, Fidelity, Nuveen, Goldman Sachs, Morgan Stanley, etc. that are well known for their very active fund management expertise. Sure they have a lot of basic Intermediate bond oefs, some short term bond oefs, some Muni funds, some government funds, even a good HY Bond fund, but I think they are so handicapped with their emphasis on low fees and avoidance of active trading, that they rarely challenge other top active management companies, with multiple multisector and nontraditional bond oefs, that do require active management expertise. For me, I look at Vanguard as a predominantly buy and hold company, that tries to get average performance with minimal trading, minimal adjusting of fund portfolios, and minimal use of more sophisticated investment strategies.
The above statement referred to Vanguard "active" investing generally and not to bond funds specifically. I see your point though. Vanguard has not previously offered any options in the multisector category. This is a broad category where specialized knowledge and strategies can be very beneficial. I would avoid the new multisector fund until Vanguard proves they have the requisite skills. There is less differentiation between the intermediate core and intermediate core-plus categories.
A fund company is not the same thing as a management company. A fund company is a brand, a distributor. A management company is, well, a company that manages investments. Saying that Vanguard has "a good HY bond fund" (managed by Wellington) means one is referring to the Vanguard brand, not Vanguard as a management company.
Vanguard often hires outside firms to handle its actively managed funds. Vanguard likely erred in trying to handle its alternative investments funds (VASFX and VMNIX) in house. And as I stated above, I would have preferred that it had outsourced these new funds. Still, that's an issue I have with the management company selected, not with Vanguard as a fund company.
Likewise, when thinking about buy and hold, there's what the investor does and what the fund manager does. As a buy and hold investor, I invest in funds that I expect to do well over the long term. That's different from the funds themselves "trying to get average performance with minimal trading, minimal adjusting of fund portfolios". The Vanguard Primecap-advised funds VPMCX and VHCOX have active share percentages of 71% and 93% respectively.
As @Observant1 noted, the remark was about Vanguard generally as opposed to its bond funds. So this comment is likewise broad. Vanguard outsources for example to PGIM Jennison, but not on the fixed income side. Perhaps it should.
In the meantime, do you have comments regarding the in-house managed VGCAX? That fund seems particularly relevant to the new multisector fund, because of its scope (global, low rated corporates) and because it shares two managers with the new fund.
Vanguard typically hedges currency in its global/international bond funds. It's going to do the same thing with this fund. Since I don't view multisector funds as stabilizers, I prefer my funds straight up, no hedging. YMMV.
From the PR: Multi-Sector Income Bond will offer exposure primarily to U.S. investment-grade securities, U.S. high-yield corporate securities, and emerging markets debt of all credit quality ratings.
This mirrors the prospectus text: the Fund will invest at least 80% of its assets in bonds, which include fixed income securities such as corporate bonds; emerging market bonds; and U.S. Treasury obligations and other U.S. government and agency securities.
Conspicuous by its absence is foreign developed market debt. While many multisector funds have rotated out of developed markets in the past several years, there's still a difference between avoiding developed market debt because of market conditions and doing that as a matter of policy.
In contrast, PIIDX's prospectus reads: “Fixed Income Instruments” include bonds, debt securities and other similar instruments issued by various U.S. and non-U.S. public- or private-sector entities.
Its portfolio's top three countries are currently the US (62.59%), Germany (3.43%), and the UK (3.42%), per M*.
Admittedly 1/6 of its foreign holdings is not a lot, but that could change. Back in 2015, its top ten countries were the US (52.57%), UK (8.96%), Luxembourg (4.62%), Netherlands (4.45%), France (3.51%), Indonesia (2.99%), Ireland (2.86%), Switzerland (2.80%), Italy (2.62%), and the Cayman Islands (1.65%).
The Vanguard fund doesn't appear to have this degree of global flexibility.
It's probably right in front of my nose, but where in "new format" Morningstar can you find the U.S./International fixed income percentage breakdown for a fund? In the old format you could at least get that from "Top 10 Country Breakdown."
I didn't find the Top 10 Country Breakdown when using the newer M* format. However, there is a way to obtain region exposure if that would be helpful. Click 'Portfolio' > Go to 'Fixed Income Exposure Analysis' section > Click drop-down arrow for 'vs. Credit Rating (Portfolio Weight%') > Select 'Region (Portfolio Weight %')
Supplement to the Prospectus and Summary Prospectus Dated October 12
Subscription period
Vanguard Core-Plus Bond Fund (the “Fund”) is holding a subscription period from October 12, 2021, through October 22, 2021. During this period, purchases of the Fund will be held in a custody account rather than being invested. This strategy should allow the Fund to accumulate sufficient assets to better construct a portfolio and is expected to reduce initial trading costs. The Fund reserves the right to terminate or extend its subscription period prior to October 22, 2021. During the subscription period, you may invest in the Fund online (if you are registered for online access), or you may contact Vanguard by telephone or by mail to request this transaction. Please see the Investing With Vanguard section of the Fund’s prospectus for more details about requesting transactions.
Given that bond yields are so low currently, I would recommend buying these funds only directly from Vanguard or perhaps Firstrade. Otherwise, transaction costs at other brokers can significantly eat into your returns in this case.
I received an email invitation today from Vanguard to "Enhance your portfolio with our new active fund." The email contained this link with more details about the Vanguard Core-Plus Bond Fund. I am considering the fund but will wait until the subscription period ends before making a purchase.
Comments
Thanks, Derf
Since I'm not a fan of most passive bond funds, this is a welcome development.
Three comanagers of the new core-plus fund also currently manage VCOBX.
They've done a decent job (vs. intermediate core bond funds) during their short tenure.
Regarding Vanguard's bond funds, I would agree that Vanguard tends to manage its funds more conservatively (even VWEHX, though that is outsourced to Wellington). Here, Vanguard relies, or if you prefer, "depends" upon its lower fees to compensate for sometimes less than inspired management.
To be clear, its actively managed bond funds are not managed by its quant or index teams. All twelve of its index bond funds are managed by Joshua C. Barrickman, who has no hand in Vanguard's actively managed funds.
Most of the active taxable, non-government (i.e. not Treasury, TIPS, etc.) funds (VGCAX, VCOBX, VIITX, VFICX, VFSTX, VUSFX, VWESX) are managed at least in part by Samuel C. Martinez, Daniel Shaykevich and Arvind Narayanan, a completely different team.
Two of these managers, Shaykevich (foreign debt) and Narayanan (IG corporate) are managing the new funds. Shaykevich is also the lead manager on VEMBX. A few years ago Chang came over from Goldman Sachs where he ran a HY fund.
To some extent I agree with what I think you may be saying. Cost is almost everything in IG bond funds, passive or active. As one moves down the credit scale or otherwise into less "conventional" arenas, bonds tend to correlate more with equities. Cost is still important, but as with equities, investment approaches and skills play a bigger role. That doesn't seem to be Vanguard's strength; it could have outsourced these funds as it did with VWEHX.
They managed over $1.6 trillion in active assets as of December 31, 2020.
Vanguard was the third-largest manager of actively managed assets as of September 30, 2019.
I see your point though. Vanguard has not previously offered any options in the multisector category.
This is a broad category where specialized knowledge and strategies can be very beneficial.
I would avoid the new multisector fund until Vanguard proves they have the requisite skills.
There is less differentiation between the intermediate core and intermediate core-plus categories.
Vanguard often hires outside firms to handle its actively managed funds. Vanguard likely erred in trying to handle its alternative investments funds (VASFX and VMNIX) in house. And as I stated above, I would have preferred that it had outsourced these new funds. Still, that's an issue I have with the management company selected, not with Vanguard as a fund company.
Likewise, when thinking about buy and hold, there's what the investor does and what the fund manager does. As a buy and hold investor, I invest in funds that I expect to do well over the long term. That's different from the funds themselves "trying to get average performance with minimal trading, minimal adjusting of fund portfolios". The Vanguard Primecap-advised funds VPMCX and VHCOX have active share percentages of 71% and 93% respectively.
As @Observant1 noted, the remark was about Vanguard generally as opposed to its bond funds. So this comment is likewise broad. Vanguard outsources for example to PGIM Jennison, but not on the fixed income side. Perhaps it should.
In the meantime, do you have comments regarding the in-house managed VGCAX? That fund seems particularly relevant to the new multisector fund, because of its scope (global, low rated corporates) and because it shares two managers with the new fund.
Vanguard typically hedges currency in its global/international bond funds. It's going to do the same thing with this fund. Since I don't view multisector funds as stabilizers, I prefer my funds straight up, no hedging. YMMV.
https://pressroom.vanguard.com/news/Press-Release-Vanguard-Announces-Plans-to-Launch-Two-New-Active-Bond-Funds-072921.html
Multi-Sector Income Bond will offer exposure primarily to U.S. investment-grade securities, U.S. high-yield corporate securities, and emerging markets debt of all credit quality ratings.
This mirrors the prospectus text:
the Fund will invest at least 80% of its assets in bonds, which include fixed income securities such as corporate bonds; emerging market bonds; and U.S. Treasury obligations and other U.S. government and agency securities.
Conspicuous by its absence is foreign developed market debt. While many multisector funds have rotated out of developed markets in the past several years, there's still a difference between avoiding developed market debt because of market conditions and doing that as a matter of policy.
In contrast, PIIDX's prospectus reads:
“Fixed Income Instruments” include bonds, debt securities and other similar instruments issued by various U.S. and non-U.S. public- or private-sector entities.
Its portfolio's top three countries are currently the US (62.59%), Germany (3.43%), and the UK (3.42%), per M*.
Admittedly 1/6 of its foreign holdings is not a lot, but that could change. Back in 2015, its top ten countries were the US (52.57%), UK (8.96%), Luxembourg (4.62%), Netherlands (4.45%), France (3.51%), Indonesia (2.99%), Ireland (2.86%), Switzerland (2.80%), Italy (2.62%), and the Cayman Islands (1.65%).
The Vanguard fund doesn't appear to have this degree of global flexibility.
There is a subscription period which will start around October 12.
Link
In the old format you could at least get that from "Top 10 Country Breakdown."
I didn't find the Top 10 Country Breakdown when using the newer M* format.
However, there is a way to obtain region exposure if that would be helpful.
Click 'Portfolio' > Go to 'Fixed Income Exposure Analysis' section > Click drop-down arrow for 'vs. Credit Rating (Portfolio Weight%') > Select 'Region (Portfolio Weight %')
The Top 10 Country Breakdown can be viewed in the older format by using the following URL (replace ticker).
https://performance.morningstar.com/fund/performance-return.action?t=DODLX®ion=usa&culture=en-US
https://www.sec.gov/Archives/edgar/data/836906/000168386321006006/f10017d1.htm
497 1 f10017d1.htm CORE-PLUS & MULTI-SECTOR INC BOND FUNDS SUPPLEMENT
Vanguard Multi-Sector Income Bond Fund
Supplement to the Prospectus and Summary Prospectus Dated October 12, 2021
Vanguard Multi-Sector Income Bond Fund is not presently available for investment.
© 2021 The Vanguard Group, Inc. All rights reserved.
Vanguard Marketing Corporation, Distributor.PS 4181 102021
Vanguard Core-Plus Bond Fund
Supplement to the Prospectus and Summary Prospectus Dated October 12
Subscription period
Vanguard Core-Plus Bond Fund (the “Fund”) is holding a subscription period from October 12, 2021, through October 22, 2021. During this period, purchases of the Fund will be held in a custody account rather than being invested. This strategy should allow the Fund to accumulate sufficient assets to better construct a portfolio and is expected to reduce initial trading costs. The Fund reserves the right to terminate or extend its subscription period prior to October 22, 2021.
During the subscription period, you may invest in the Fund online (if you are registered for online access), or you may contact Vanguard by telephone or by mail to request this transaction. Please see the Investing With Vanguard section of the Fund’s prospectus for more details about requesting transactions.
© 2021 The Vanguard Group, Inc. All rights reserved.
Vanguard Marketing Corporation, Distributor.PS V001 102021
Vanguard Malvern Funds
Supplement to the Statement of Additional Information Dated October 12, 2021
Vanguard Multi-Sector Income Bond Fund is not presently available for investment.
© 2021 The Vanguard Group, Inc. All rights reserved.
Vanguard Marketing Corporation, Distributor.
SAI 4181A 102021
Wouldn't it be better to wait for Vanguard Core-Plus Bond Fund to go live?
The email contained this link with more details about the Vanguard Core-Plus Bond Fund.
I am considering the fund but will wait until the subscription period ends before making a purchase.