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CNBC
3 days ago
- Business
- CNBC
Index fund giant Vanguard is getting more active in its approach to market
Actively managed exchange-traded funds are having a moment, but it's not going to be a passing fad. This year alone, a record number of ETFs have been introduced, with 288 new funds and the potential for over 1,000 new ETFs by this year's end, many bringing actively managed strategies from the traditional mutual fund world to ETFs. There are currently more than 2,000 active ETFs, and while they only make up about 10% of total ETF market assets, they have taken in over one-third of the flows this year from investors and reached the $1 trillion mark in total assets this year. ETF experts say as more major fund companies add actively managed portfolios, it will help to shape the ETF industry's long-term future. Case in point is the biggest index fund company of all, Vanguard. Vanguard has launched eight active fixed-income ETFs. Roger Hallam, Vanguard global head of rates, cites these strategies in being integral for generating repeatable returns for clients. "We're very focused on delivering bottom-up security selection to ensure that our alpha generation is as high information as it can be, so that we deliver repeatable returns for our investors over the investment cycle" Hallam said on a recent CNBC "ETF Edge" segment. The Vanguard ETFs include an ultra-short treasury ETF (VGUS), a 0-3 month T-Bill ETF (VBIL), a short duration bond ETF (VSDB), and a long-term tax exempt bond ETF (VTEL) amongst others. ETF experts caution that there is a big difference between adding active strategies to add return potential around a portfolio core of index holdings and becoming market timer, with the latter still a mistake too many investors make when markets are volatile. Active fixed income strategies have allowed managers to be more surgical in approach to a bond market which has faced high and atypical levels of volatility, and in light of the fact that the big traditional index from the bond market, the AGG, is considered by many bond experts to be out of date in its composition (the same would not be said of the S&P 500 for stocks). In the equities space, some of the newest active approaches are designed to limit risk in the stock market rather than ratchet risk up. Amid a year which already experienced one huge market drop, it's important for investors to not over-correct based on short-term swings in performance. But active strategies make sense in ETFs, according to BlackRock's U.S. Head of Equity ETFs Jay Jacobs, for reasons that go beyond the recent bond and stock market volatility. "You've seen hundreds of billions of dollars pouring into ETF models that are scalable, repeatable, and cost efficient. And increasingly those models are adding active strategies to introduce new sources of alpha for their clients. So, there's a lot of tailwinds," he said, adding that the tax-efficient nature of buying and selling within ETFs is another benefit contributing to the adoption of active ETFs. "Previously, strategies that maybe were harder to access, or there was investment minimums, or the tax efficiency meant they could only be used by institutions that were tax advantaged, that has largely gone away with active ETFs" Jacobs said. "The world has shifted a lot in the last few years," he added. The ETF experts also say that investors may seek more return generation from active approaches if the last decade of market returns proves to be unrepeatable. The ultra-low interest rate policies from the Federal Reserve which boosted the performance of the stock market in particular are not expected to return, and that has implications for what investor can expect from their core holdings. The shift to more of these active strategies marks not only a significant change in how asset managers are tweaking their ETF portfolio lineups, but in how investors are approaching the market. Disclaimer
Yahoo
04-04-2025
- Business
- Yahoo
VSDB: Vanguard Launches New Short Duration Bond ETF
Vanguard debuted a new active fixed income exchange-traded fund Thursday: the Vanguard Short Duration Bond ETF (VSDB). The fund, which has an expense ratio of 0.15% and will be managed by Vanguard's Fixed Income Group, is designed to offer investors current income and lower price volatility consistent with short-duration bonds. It primarily holds short-duration U.S. investment-grade bonds but has flexibility to include below-investment-grade debt and emerging markets to seek additional yield. VSDB is Vanguard's sixth actively managed bond ETF. Vanguard's launch of an active short-duration strategy via the ETF structure underscores manager interest in launching active fixed-income products and competing on fees in a category that would have previously been the domain of more expensive mutual funds, Daniil Shapiro, director at Cerulli Associates's Product Development practice, told 'The exposure will be most appealing to investors looking to generate income while avoiding interest rate risk—an important value proposition amidst market uncertainty,' Shapiro added. Short-term bonds, particularly those with credit risk, have a strong risk/return profile compared to most other segments of the fixed-income market, which has drawn significant investor interest over time, Rebecca Venter, senior fixed income product manager at Vanguard, told It's also an important category for active management, as the third-largest active fixed-income product segment, she added. 'While an inverted yield curve has led to outflows from short-term bond products to ultra-short or money market products, we expect short-term bond funds and ETFs to remain a critical allocation in investors' liquidity portfolios and an important tool to maintain attractive yield while lowering volatility in overall bond portfolios,' Venter said. 'This year, amid growing market and economic uncertainty, we've begun to see flows return to active and passive short-term bond funds and ETFs.'Permalink | © Copyright 2025 All rights reserved Sign in to access your portfolio
