Credit: Tadamichi/Adobe Stock
Vanguard has filed plans to launch a U.S. high-yield corporate bond index ETF (VCHY), a move that one analyst says will fill a gap in the giant asset manager's offerings and bring on a price war.
The exchange-traded fund tracks a Bloomberg U.S. high-yield index that measures performance of dollar-denominated, high-yield, fixed-rate corporate bonds and caps issuer concentration. Management fees weren't disclosed on the preliminary prospectus, filed Thursday.
Jeff DeMaso, who edits The Independent Vanguard Adviser newsletter and reported on the filing, said that the ETF "fills an obvious gap" and noted that BlackRock, through iShares, and State Street, via SPDR, brought high-yield bond index ETFs to market in 2007.
"Vanguard is, remarkably, nearly two decades late to the party," he wrote, adding that investors should "expect a price war."
"iShares (HYG) charges 0.49%, while SPDR (JNK) comes in at 0.40%. Vanguard's active high-yield ETF (VGHY) is already much cheaper at 0.22%. It would be no surprise to see this index ETF come in even lower," DeMaso explained, referring to iShares iBoxx $ High Yield Corporate Bond ETF, State Street SPDR Bloomberg High Yield Bond ETF and Vanguard High Yield Active ETF, respectively.
"Vanguard investors now have three ways to access junk bonds," including a mutual fund and the active ETF, he added,
Investors don't need to rush to buy the new one, although there's nothing wrong with it, DeMaso said. He noted that the High-Yield Active ETF yields 6.14%, which sounds appealing, but the Intermediate-Term Treasury ETF (VGIT) yields 3.78%.
"Investors are picking up just 2.36 percentage points to take on significantly more credit risk," he said. "That's not much of a cushion. Yes, we need to take risk to build wealth — but only when we're getting paid for it. That's not the case in the junk bond market today. Better opportunities will come. Patience should pay."
DeMaso, citing the filing, said that the fund is scheduled to launch in early June; a Vanguard spokesperson told ThinkAdvisor that it is expected to open in the second quarter.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.