Best and Worst Vanguard Funds for the Next 6 Months

Best Fund #2:

TAXABLE INCOME | Short-Term Investment-Grade (VFSTX)

Short-Term Investment-Grade (VFSTX)ADMIRAL: VFSUX

FUND NUMBER: 39

OBJECTIVE: Taxable Income

Invests at least 80% of assets in "investmentgrade" or better short- and intermediate-term bonds. Can also purchase illiquid securities (max 15%), derivatives, bond ETFs and Vanguard money market funds. Up to 30% of assets may be invested in medium-quality bonds and up to 5% in unrated or non-investment- grade bonds. Average weighted maturity of 1 to 4 years. Until July 2004, known as the Short-Term Corporate fund.

12-MONTH YIELD: 2.8%

MIN. INITIAL INVESTMENT: $3,000

DIVIDENDS: Accrues daily, paid monthly

DATE OF INCEPTION: October 1982

FISCAL YEAR END: 1/31

PORTFOLIO MANAGER (SINCE):
Gregory S. Nassour (2008)
Vanguard Fixed Income Group (inception)

SPECIAL FEES: None

Short-Term Investment-Grade saw the end of an era in 2010, as longtime manager Robert Auwaerter left the fund after 27 years of stewardship. His co-manager over the prior few years, Gregory Nassour, is now flying solo and should carry on Auwaerter’s legacy.

Only top-tier “investment grade” bonds make the cut for this fund, so credit quality is extremely high. The fund typically posts high returns coupled with relatively low risk. Long-term returns are excellent, relative to both its peers and the market as a whole, although it has lagged its short-term bond benchmark on occasion. However, anything that wasn’t Treasury-issued was tainted by the collapse of the lending industry in 2008, and this fund suffered for it, as can be seen by the MCL of -7.6% (its previous MCL of -2.2% was accumulated in 1994). The fund recovered quickly, however.

As investors rushed into Treasurys and other ultra-safe fixed income investments, the relatively riskier investment-grade segment of the market saw less demand in 2011. Following suit, Short-Term Investment-Grade’s performance lagged that of Vanguard’s other short-term funds, all of which invest in Treasurys. But compare its year-end 1.96% yield to Short-Term Treasury’s 0.25%, and it regains some of its luster. This is a great, well-managed fund for those looking for a cash substitute or a shock absorber for a stock-heavy portfolio.

Over the past several years, average maturity has ranged from 2.0 to 3.4 years. In recent months, the fund’s maturity has been in the middle of the range.
Previous Next Print