Vanguard on Wednesday launched its first junk bond exchange-traded fund, the actively managed Vanguard High-Yield Active ETF (VGHY).
"Our goal is to deliver an actively managed solution that adapts dynamically to market conditions with precision and purpose to outperform its benchmark and peers," said Michael Chang, Vanguard's high-yield portfolio management head.
The ETF, managed by Vanguard Fixed Income Group, aims to provide diversified exposure across the full high-yield credit quality spectrum, with limited flexibility to invest in complementary sectors such as leveraged loans and U.S. investment-grade corporate bonds. Its estimated 0.22% expense ratio is significantly below the 0.59% category average, Vanguard said.
Jeff DeMaso, who edits the Independent Vanguard Adviser, noted that the fund giant has long missed a high-yield bond ETF offering, while suggesting in his newsletter that the timing for prices isn't great.
"Too bad junk bonds have rarely looked this expensive," he wrote. "For years, the absence of a high-yield bond ETF has been a glaring hole in Vanguard’s lineup. The surprise isn’t the launch — it’s the structure. Instead of indexing the market, Vanguard has gone active."
The new ETF differs some from Vanguard’s long-running High-Yield Corporate Fund (VWEHX), he added.
"Both are actively managed, but with one key difference: The new ETF is run solely by Vanguard, while the mutual fund is a joint effort between Vanguard and Wellington," DeMaso said. "High-Yield Corporate has always taken a conservative path, capping bonds rated below B at 20% of assets. The new ETF’s prospectus doesn’t include that cap — suggesting it will venture deeper into riskier bonds."
Vanguard manages over $1.1 trillion in active fixed income assets, offering access to a broad array of strategies.
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