Vanguard has strengthened its fixed-income lineup with the launch of the Vanguard U.S. High-Yield Corporate Bond Index ETF (VCHY), a new ETF that provides indexed exposure to U.S. dollar-denominated corporate bonds rated below investment grade. It will trade on the Cboe BZX Exchange.
The vehicle will be managed by Vanguard Capital Management’s fixed-income team, one of the largest bond indexing platforms in the world, and joins the growing range of products designed to meet investors’ income-generation and diversification needs.
According to Sara Devereux, Chief Investment Officer of Vanguard Capital Management and Global Head of Fixed Income at the firm, the high-yield market has become increasingly important within strategic fixed-income allocations, although a significant portion of exposure remains concentrated in higher-cost structures. “The high-yield market is broad and increasingly important within fixed-income portfolios. With VCHY, we offer a low-cost, indexed approach that provides broad, rules-based exposure with a focus on liquidity and efficiency,” the executive stated.
The ETF seeks to replicate the performance of the Bloomberg U.S. Corporate High Yield 250MM 2% Issuer Capped Index, a market-capitalization-weighted benchmark that provides diversified exposure to the U.S. corporate debt universe rated below investment grade. In addition, it incorporates issuer concentration limits to reduce issuer-specific risks within the portfolio.
One of Vanguard’s main arguments for the launch is its cost structure. The ETF will debut with an annual expense ratio of 0.05%, placing it among the most competitive products in its category in terms of ongoing expenses.
Amma Boateng, Managing Director of Financial Advisor Services at Vanguard, noted that financial advisors are increasingly seeking tools that allow them to incorporate high-yield credit exposure into client portfolios in an efficient and transparent manner. “Investors need access to a broad range of high-quality, low-cost solutions to achieve their income-generation and diversification goals. VCHY reflects our commitment to continuing to expand our fixed-income offering with tools that enable exposure to the high-yield segment while taking risk in an intelligent way,” she said.
The launch also highlights Vanguard’s expertise in indexed fixed-income management. Vanguard Capital Management currently oversees more than $2.9 trillion in fixed-income assets globally and has four decades of experience in the segment, having launched the world’s first bond index fund in 1986.
Day-to-day management of the new ETF will be handled by Joshua Barrickman and Manuel Hayes, both of whom have more than twenty years of experience in overseeing and managing fixed-income portfolios.
With this launch, Vanguard continues to expand its presence in the fixed-income ETF market, a segment that continues to see strong demand from investors and financial advisors seeking efficient solutions to complement their traditional bond allocations.
