OverTheHill wrote:I don't think there's ever been a default in the history of the fund. Interestingly, I don't think there's ever been a default of the High Yield corp fund either.
I doubt this. Check out the annual statement and search "security in default". You'll see a foot it's in the short term investment grade fund (associated with a Lehman bond). Similarly, in the bond index funds annual statement, you'll find the same footnote associated with Enron holdings. Even the granddaddy of them all, TBM, discloses it still holds some Enron bonds which are "in default." So either Vanguard is buying defaulted securities in its investment grade funds (extremely unlikely), or these holdings defaulted while Vanguard was holding them (much more likely). Granted, these are not sizable holdings in these funds, but it is untrue to say it "never" happened.
Two more points. First, these annual statements are only reflective of he holdings in the funds as of the close of the funds' fiscal year. If Vanguard unloaded defaulted securities even one day before the "as of" date, they would not appear in the annual statements. Second, if a holding merely goes from investment grade to junk status before Vanguard unloads it (without waiting for it to default), it will still be selling the security at a substantial loss. It would be "buying high and selling low." So even if Vanguard could actually claim that none of its holdings ever defaulted, that would NOT be the same as claiming that the fund never suffered a loss due to credit risk showing up.
Don't assume I know what I'm talking about.