Vanguard Ultra-Short-Term Bond Fund now available

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acejacksingh
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Vanguard Ultra-Short-Term Bond Fund now available

Post by acejacksingh » Tue Feb 10, 2015 12:18 pm

Hi BH's

Looks like VG has a new bond fund, Vanguard Ultra-Short-Term Bond Fund (VUBFX, VUSFX). What are your thoughts on this fund and how can it be incorporated into ones portfolio?

https://personal.vanguard.com/us/insigh ... t-02102015

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by indexfundfan » Tue Feb 10, 2015 12:23 pm

Interesting. I wonder what the yield would be on this fund?

Given that online savings are now yielding 1% and the short term tax-exempt has a distribution yield of ~0.7%, this fund needs to have a yield of 1.2% ~ 1.5% to be attractive.
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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by bhsince87 » Tue Feb 10, 2015 12:53 pm

Hmm. Very interesting. I'd consider something like this. Could be very handy for stashing living expenses or emergency funds.

One advantage over back accounts for me, is it could count toward Voyager qualification. I just sold a bunch of individual stocks recently and moved them into Vanguard funds, so I'm very close to hitting the next level of benefits. Of course, no FDIC protection.
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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by saltycaper » Tue Feb 10, 2015 1:04 pm

With 1 year treasuries yielding under .5% and high-quality corporates about 1.5%, I'd be surprised if the initial yield was outside the .7% to .9% range.
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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by AZAttorney11 » Tue Feb 10, 2015 1:06 pm

It's likely going to yield less than certain online savings accounts, and there is no FDIC protection. I'll pass. But this is good news for some investors, particularly those with 401(k)'s through Vanguard that want something higher yielding than Prime Money Market.

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by Index Fan » Tue Feb 10, 2015 1:08 pm

Well, it's better than the money market fund ;)

I'll stick with Short Term Bond Index.
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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by Aptenodytes » Tue Feb 10, 2015 1:27 pm

My guess is this is a response to the mounting unease about "what will happen to my bond funds when interest rates rise?" The short-term bond fund seems to have an average effective maturity of 2.7 years, which is plenty short-term for me. But the freak-out demographic probably wants something even shorter. The ultra-short-term prospectus only says that the maturities will range from 0-3 years, not what the target average maturity will be. I'm guessing it will be about 1 year, but who knows. Lower than that, and the ER will likely be higher than the yield (for investor shares). But maybe you have to go lower to draw in the freakers-out.

Functionally, it seems equivalent to a savings account for people who can tolerate a tiny bit of risk, but for some people easier to deal with in the context of managing their portfolios than an actual savings account. Like a money market account whose NAV can vary.

Or maybe the wizards at Vanguard anticipate an extreme flattening of the yield curve so that such very short-term funds make sense even from the cold rational perspective of objective finance. For me the sweet spot still seems to hover at around 5 years so this product won't appeal to me unless market conditions drastically change.

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by nisiprius » Tue Feb 10, 2015 1:39 pm

I don't see how the interest rate can turn out to be high enough to care much about. It will still be true that almost any bank account will beat it--and without even the smallest of fluctuations.

During 2006-7 there were quite a lot of things that were billed as "really pretty much just about as safe as a money market fund almost, and look! more return," and a) I'm glad I didn't fall for any of them, and b) I would say that the phrase "ultra-short bond" does give me the willies. I actually trust Vanguard to the point where I wouldn't expect anything like this to happen.

Nevertheless, for your viewing pleasure: Orange, Fidelity Ultra-Short Bond Fund. Green, PIMCO Short Duration Muni Income fund. And "best" of all, blue, Schwab YieldPlus.

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by AZAttorney11 » Tue Feb 10, 2015 2:38 pm

nisiprius wrote:I don't see how the interest rate can turn out to be high enough to care much about. It will still be true that almost any bank account will beat it--and without even the smallest of fluctuations.

During 2006-7 there were quite a lot of things that were billed as "really pretty much just about as safe as a money market fund almost, and look! more return," and a) I'm glad I didn't fall for any of them, and b) I would say that the phrase "ultra-short bond" does give me the willies. I actually trust Vanguard to the point where I wouldn't expect anything like this to happen.

Nevertheless, for your viewing pleasure: Orange, Fidelity Ultra-Short Bond Fund. Green, PIMCO Short Duration Muni Income fund. And "best" of all, blue, Schwab YieldPlus.

Image
Excellent, excellent post. Why take any credit risk if you don't have to, particularly when the more risky investment will very likely yield less?

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by grabiner » Tue Feb 10, 2015 8:03 pm

nisiprius wrote:I don't see how the interest rate can turn out to be high enough to care much about. It will still be true that almost any bank account will beat it--and without even the smallest of fluctuations.

During 2006-7 there were quite a lot of things that were billed as "really pretty much just about as safe as a money market fund almost, and look! more return," and a) I'm glad I didn't fall for any of them, and b) I would say that the phrase "ultra-short bond" does give me the willies. I actually trust Vanguard to the point where I wouldn't expect anything like this to happen.
I would expect the fund to behave more like Vanguard Short-Term Investment-Grade in a crisis; that fund lost about 7% in the fall of 2008 due to the increased default risk.
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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by nisiprius » Tue Feb 10, 2015 8:15 pm

I was curious to see what it says about credit quality, but...

Vanguard's summary page is showing
Image

while meanwhile Morningstar shows nothing about the fund at all:

Image

Ah, I see why:
The fund is in a subscription period until February 23, 2015, during which time all assets will be held directly or indirectly in money market instruments
Maybe it's a little early to be thinking about this fund. :D
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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by john94549 » Tue Feb 10, 2015 8:31 pm

It might be a viable alternative to VMMXX, but, then, anything is a viable alternative to VMMXX.

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by AZAttorney11 » Tue Feb 10, 2015 8:33 pm

grabiner wrote:I would expect the fund to behave more like Vanguard Short-Term Investment-Grade in a crisis; that fund lost about 7% in the fall of 2008 due to the increased default risk.
I agree. And this brings up the following question -- given the choice between a high yield savings account that is FDIC insured, and this new fund, why would anyone choose the fund? I understand if an investor wants ultra-short-term bonds in their retirement account and doesn't have access to an online savings account, but for taxable investors (retail ones, anyways) I'm not sure this new offering makes a lot of sense given the alternatives.

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Vanguard Ultra-Short Term Bond Fund

Post by IlikeJackB » Tue Feb 10, 2015 8:36 pm

[Thread merged into here, see below. --admin LadyGeek]

This fund is in its subscription period now. https://personal.vanguard.com/us/funds/ ... =INT#tab=0

Is anyone planning to step up from a money market fund or step down from a short term bond fund to invest in this? Just wondering what the boglehead community thinks of this new fund.
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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by DVMResident » Tue Feb 10, 2015 8:43 pm

AZAttorney11 wrote:there is no FDIC protection.
I don't understand the advantage of FDIC in this case: isn't FDIC insurance and Treasury bonds exposed to essentially the same default risk*? They're both backed the US government.

It's hard imagining a scenario were FDIC defaulted but the Treasuries would not or vise versa. I don't see the FDIC insurance as an advantage in savings accounts over any other government bond (e.g. iBond). Rather, FDIC insurance eliminates the bank's risk of de facto "defaulting" on your deposit (e.g. during a bank run), bringing savings accounts safety to a similar level of safety as government bonds.

*Granted bond funds have other risks, like interest sensitivity, but those are unrelated to FDIC.

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by LadyGeek » Tue Feb 10, 2015 8:45 pm

I merged IlikeJackB's thread into here. This (combined) thread is now in the Investing - Theory, News & General forum (investing news).
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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by Phineas J. Whoopee » Tue Feb 10, 2015 8:55 pm

DVMResident wrote: I don't understand the advantage of FDIC in this case: isn't FDIC insurance and Treasury bonds exposed to essentially the same default risk*? They're both backed the US government.
...
Based on the information that is on Vanguard's web page (no criticism, they can hardly be expected to report the characteristics of a portfolio which doesn't yet exist), linked above, the fund will invest in a combination of Government (not necessarily all Treasuries), MBS, and corporate bonds.

It isn't as secure as an all-Treasuries ultra-short fund. It wouldn't be hard to roll one's own of those at TreasuryDirect, or via any broker which doesn't charge a fee for noncompetitive bids and receiving proceeds at maturity (like, for example, Vanguard). Today, of course, top CDs still offer a better rate to individual investors, for most of whom the two hundred fifty large guarantee provides a meaningful reduction in risk.

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by AZAttorney11 » Tue Feb 10, 2015 9:06 pm

DVMResident wrote:
AZAttorney11 wrote:there is no FDIC protection.
I don't understand the advantage of FDIC in this case: isn't FDIC insurance and Treasury bonds exposed to essentially the same default risk*? They're both backed the US government.

It's hard imagining a scenario were FDIC defaulted but the Treasuries would not or vise versa. I don't see the FDIC insurance as an advantage in savings accounts over any other government bond (e.g. iBond). Rather, FDIC insurance eliminates the bank's risk of de facto "defaulting" on your deposit (e.g. during a bank run), bringing savings accounts safety to a similar level of safety as government bonds.

*Granted bond funds have other risks, like interest sensitivity, but those are unrelated to FDIC.
PJW answered your question better than I could. But one thing to keep in mind -- a mutual fund, even one that invests in high grade, ultra-short-term securities is subject to market fluctuations (see the wonderful chart posted by Nisi). A savings account does not have that risk. If you're saving for a large purchase, such as a down payment on a house, the last thing you want is for your cash to be subject to the market's gyrations.

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by LadyGeek » Tue Feb 10, 2015 9:16 pm

Here's the SEC filings: EDGAR Search Results (Vanguard Fixed Income Securities Funds CIK#: 0000106444)

The Form 485BPOS (summary page)

-JPMorgan Chase is the custodian

Click on the top link: Form N-1A (Prospectus, Issued February 9, 2015)

BTW, here's what the SEC has to say about these funds: Ultra-Short Bond Funds: Know Where You’re Parking Your Money
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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by nbseer » Tue Feb 10, 2015 9:24 pm

I'm moving some of my TIRA money from the Vanguard Money Market into this new fund.. simply because it's gotta have a higher rate than the money market. Just the amount I plan on withdrawing over the next two years for living expenses.

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by LadyGeek » Tue Feb 10, 2015 9:41 pm

^^^ This is why I posted the SEC information (underline is mine):
If you are considering investing in an ultra-short bond fund, keep in mind that ultra-short bond funds can vary significantly in their risks and rewards. In fact, some ultra-short bond funds may lose money despite their investment objective of preserving capital.
Ultra-Short-Term does not mean Ultra-Safe.
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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by joe8d » Tue Feb 10, 2015 10:00 pm

I'll stay with STIG for now.
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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by msi » Tue Feb 10, 2015 10:30 pm

AZAttorney11 wrote:
grabiner wrote:I would expect the fund to behave more like Vanguard Short-Term Investment-Grade in a crisis; that fund lost about 7% in the fall of 2008 due to the increased default risk.
I agree. And this brings up the following question -- given the choice between a high yield savings account that is FDIC insured, and this new fund, why would anyone choose the fund? I understand if an investor wants ultra-short-term bonds in their retirement account and doesn't have access to an online savings account, but for taxable investors (retail ones, anyways) I'm not sure this new offering makes a lot of sense given the alternatives.
FDIC only covers $250k per depositor per bank. A Vanguard investor concerned about rising rates might want to put some or all of their bond allocation in this fund to use as dry powder. It is more appropriate for tax advantaged, though.

It is also too early to have an expectation for the fund's behavior during a crisis when we don't even know what its portfolio is. Other funds' past performance cannot predict the future performance of an entirely different fund still in subscription period no less.

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by Tamales » Tue Feb 10, 2015 10:32 pm

nisiprius wrote:...Nevertheless, for your viewing pleasure: Orange, Fidelity Ultra-Short Bond Fund. Green, PIMCO Short Duration Muni Income fund. And "best" of all, blue, Schwab YieldPlus.

Image

Thanks for the charts nisiprius. I had to look up the back-story on that Schwab fund. This is really worth reading about, so here are a few links I thought I'd pass on:

First is this article prior to the crash, touting the fund:
http://www.prnewswire.com/news-releases ... 76642.html
A snip: "The Schwab YieldPlus Fund has a five-star overall rating from Morningstar out of 97 funds in the ultra- short bond category for the period ended June 30, 2006. (The fund received a five-star rating for the three- and five-year periods out of 97 funds for the three-year period and 67 funds for the five-year period, respectively.

Next is this: "Lessons from Schwab's YieldPlus Debacle
http://www.cbsnews.com/news/lessons-fro ... s-debacle/

and finally this one, which summarizes the lawsuit settlement and various other things, but also ties into another ongoing BH thread where there is discussion of Bill Gross investing his own money in his fund. In this article they note that Charles Schwab himself was the biggest investor, and biggest loser, in the YieldPlus fund:
http://www.nytimes.com/2011/01/14/busin ... d=all&_r=0

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by tarnation » Tue Feb 10, 2015 11:12 pm

But this is not endemic to this class of fund. This could happen to any fund where there are enough redemptions to cause liquidation at fire sale prices. right?
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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by sport » Tue Feb 10, 2015 11:18 pm

For anyone who contemplates using this fund as an alternative to a MM fund or a savings account, they should realize that every deposit and withdrawal would be a taxable event. This would require careful recordkeeping to file one's income taxes properly.
Of course, you could rely on Vanguard to keep the records for you, but if you want to get into specific lots, it could be quite complicated.

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by JDDS » Tue Feb 10, 2015 11:48 pm

The posting on the advisors site describes some reasons why institutional clients may be interested in this fund: https://advisors.vanguard.com/VGApp/iip ... info021015
Vanguard wrote: The fund may be of interest to certain institutional investors who won't have access to a "retail" or "prime" money market fund with a fixed $1 share price after the upcoming implementation of money market reform. For such investors, the Ultra-Short-Term Bond Fund could be an attractive complement to a government money market fund with a stable $1 per-share net asset value (NAV).


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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by Tamales » Tue Feb 10, 2015 11:55 pm

tarnation wrote:But this is not endemic to this class of fund. This could happen to any fund where there are enough redemptions to cause liquidation at fire sale prices. right?
Yes but redemptions weren't the cause of the schwab fund tanking (not initially anyway). They were billing the fund as safe, but were investing in "investment grade" sub-prime, non-agency MBS, and they were playing fast and loose with the definition of maturity to meet the short term objective (a quote from one of the articles: "Instead, [Schwab] decided that a security that would mature in 20 years, but whose interest rate was reset every month, had a one-month maturity."

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by stlutz » Wed Feb 11, 2015 1:01 am

When this fund would be attractive is at a time when the yield curve is very flat or inverted. For those who want to follow a variable maturity strategy, this type of fund would make sense then over the other options in that case.

I put this in the same bucket as the int't bond fund--have no interest now but I'm glad it's around should it make sense for me in the future.

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by Phineas J. Whoopee » Wed Feb 11, 2015 2:36 am

tarnation wrote:But this is not endemic to this class of fund. This could happen to any fund where there are enough redemptions to cause liquidation at fire sale prices. right?
The mainline bond funds all invest in more or less the same securities, therefore redemptions at any one, as you've suggested, wouldn't cause a fire sale. It could happen if everybody all at once wanted to get their cash out of all the similar funds from all the fund families, except for three things:

1) Funds have the right, by law, to delay redeeming shares for up to seven days;

2) Funds have the right, by law, to redeem shares in kind, that is, to distribute the underlying securities instead of cash; and

3) The Securities and Exchange Commission has the right, by law, to declare an emergency under which fund redemptions are suspended indefinitely, to protect the assets of the remaining shareholders.

I don't know the combination of those three points will increase your confidence in anything, but no, it isn't necessarily the case that funds will have to sell at, as you said, fire sale prices.

You might have to, however, if you needed the cash badly enough.

It isn't possible to protect against all hazards, but one should construct h/er/is portfolio to take account of the risks s/he faces.

PJW

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by pascalwager » Wed Feb 11, 2015 3:10 am

For comparison, the DFA ultra-short bond fund (DFIHX), duration = 0.93 years, has an SEC yield = 0.33%. VMMXX ($137 billion assets) is still purchased at yield = 0.01%, so Vanguard may believe that another group might invest in a riskier ultra-short fund to get even more yield! Personally, I'll probably stay with my online bank HY savings APY 1.0%.

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by RunningRad » Wed Feb 11, 2015 6:42 am

I am wondering if these ultra short term funds are offered for the benefit of the company, rather than the investor, in that they might encourage investors to move money out of the currently money-losing (for the company) money market space. Investors will flock out of the money market fund and into the bond fund, shouldering some interest rate risk and credit risk in search of higher yield. All the while, the money market fund, which is kept afloat at the real expense of the company, gets lighter. Smart business move, if you ask me.
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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by ftobin » Wed Feb 11, 2015 12:40 pm

I believe this fund is aimed at institutional investors who won't be able to use money market funds with fixed share values in the future:
The fund may be of interest to certain institutional investors who won't have access to a "retail" or "prime" money market fund with a fixed $1 share price after the upcoming implementation of money market reform. For such investors, the Ultra-Short-Term Bond Fund could be an attractive complement to a government money market fund with a stable $1 per-share net asset value (NAV).

Under final rules issued by the Securities and Exchange Commission in 2014, certain institutional investors, including defined benefit plans and nonprofits, will be prohibited from holding retail money market funds with stable $1 NAVs, effective October 2016. However, the new rules continue to allow these investors access to government money market funds with stable NAVs.
https://advisors.vanguard.com/VGApp/iip ... info021015

As an aside, I usually find the advisors/institutional site for Vanguard much more informative than the "personal" investors' site.

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by tarnation » Wed Feb 11, 2015 12:55 pm

Tamales wrote:
tarnation wrote:But this is not endemic to this class of fund. This could happen to any fund where there are enough redemptions to cause liquidation at fire sale prices. right?
Yes but redemptions weren't the cause of the schwab fund tanking (not initially anyway).
right. The apocalyptic cycle has to start with a drop in NAV, otherwise there is no forcing function for redemptions and if there were mass redemptions, liquidations would be at a reasonable value
They were billing the fund as safe, but were investing in "investment grade" sub-prime, non-agency MBS, and they were playing fast and loose with the definition of maturity to meet the short term objective (a quote from one of the articles: "Instead, [Schwab] decided that a security that would mature in 20 years, but whose interest rate was reset every month, had a one-month maturity."
Yeah, but from the reading it seems that they did not tank due to defaults. It seem mostly attributed to to mass redemptions when the credit markets were frozen, their holdings were marked down, and they were not holding any cash to cover redemptions. My understanding of bonds is you don't lose money except for defaults or if you sell them low. If they didn't have massive defaults, the investors would have been fine if they held.
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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by tarnation » Wed Feb 11, 2015 1:03 pm

Phineas J. Whoopee wrote:
tarnation wrote:But this is not endemic to this class of fund. This could happen to any fund where there are enough redemptions to cause liquidation at fire sale prices. right?
The mainline bond funds all invest in more or less the same securities, therefore redemptions at any one, as you've suggested, wouldn't cause a fire sale. It could happen if everybody all at once wanted to get their cash out of all the similar funds from all the fund families, except for three things:

1) Funds have the right, by law, to delay redeeming shares for up to seven days;

2) Funds have the right, by law, to redeem shares in kind, that is, to distribute the underlying securities instead of cash; and

3) The Securities and Exchange Commission has the right, by law, to declare an emergency under which fund redemptions are suspended indefinitely, to protect the assets of the remaining shareholders.

I don't know the combination of those three points will increase your confidence in anything, but no, it isn't necessarily the case that funds will have to sell at, as you said, fire sale prices.

You might have to, however, if you needed the cash badly enough.

It isn't possible to protect against all hazards, but one should construct h/er/is portfolio to take account of the risks s/he faces.

PJW
i agree with all points. That being said, this does not preclude the same disaster on any given fund. I'm just noticed that this category of fund received extra warnings in this thread, when this could happen to any fund caught in a perfect storm.
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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by Electron » Thu Feb 12, 2015 12:47 am

Vanguard Short Term Investment Grade (Investor Shares) currently shows an SEC Yield of 1.54%. The Distribution Yield is 1.76%.

https://personal.vanguard.com/us/funds/ ... =INT#tab=0

Average Maturity is 3.0 years and Duration is 2.4 years. The new Ultra-Short Fund is expected to have an Average Maturity of 0.0 to 3.0 years and a Duration of 0.75 to 1.25 years.

One might estimate the SEC Yield at no more than one half of the 1.54% in the Short Term fund. A lot will depend on the credit quality of the underlying portfolio.
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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by toto238 » Tue Apr 21, 2015 4:55 pm

So I'm bumping this thread since we now have more information to work off of for this fund. Looking at the Admiral shares:

Price per share started at $20.00, and is now $20.01. It has ranged as low as $19.98 though.

SEC Yield is currently listed at 0.53%

Average effective maturity: 1.0 years

Average Duration: 0.9 years

Number of bonds: 433

Fund total net assets as of 3/31/15: $110.1 million

11.1% US Government bonds, some holdings in Agency bonds (FNMA, Freddie Mac, etc.) with the remaining corporate (either investment grade or not-rated).

Looks like a roughly even 50-50 split between bonds under 1-year, and bonds between 1-3 years, with about 0.3% in maturities longer than 3 years.



Given that we know a little bit more about it now, does anyone have any thoughts about the fund? Certainly seems to yield a bit more than a money market.

Day9
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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by Day9 » Tue Apr 21, 2015 4:58 pm

Sure 0.53% is more than a money market but it's less than the 0.9%-1% you can get at some online high yield FDIC insured savings accounts.

The only reason I can think to prefer this fund over those accounts is the $250k limit.
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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by nisiprius » Tue Apr 21, 2015 5:11 pm

toto238 wrote:...Given that we know a little bit more about it now, does anyone have any thoughts about the fund? Certainly seems to yield a bit more than a money market...
Two cheers. How does it compare to an FDIC-insured savings account?
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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by toto238 » Tue Apr 21, 2015 5:15 pm

nisiprius wrote:
toto238 wrote:...Given that we know a little bit more about it now, does anyone have any thoughts about the fund? Certainly seems to yield a bit more than a money market...
Two cheers. How does it compare to an FDIC-insured savings account?
Well say you're an institution that doesn't have FDIC-insurance available to you. People have already put somewhere around $110million in it before they knew virtually anything about it. I imagine that will grow quickly once it becomes more widely available in 401k plans Vanguard manages. It is obviously appealing to some.

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by Doc » Wed Apr 22, 2015 8:55 am

Phineas J. Whoopee wrote:
DVMResident wrote: I don't understand the advantage of FDIC in this case: isn't FDIC insurance and Treasury bonds exposed to essentially the same default risk*? They're both backed the US government.
...
Based on the information that is on Vanguard's web page (no criticism, they can hardly be expected to report the characteristics of a portfolio which doesn't yet exist), linked above, the fund will invest in a combination of Government (not necessarily all Treasuries), MBS, and corporate bonds.

It isn't as secure as an all-Treasuries ultra-short fund. It wouldn't be hard to roll one's own of those at TreasuryDirect, or via any broker which doesn't charge a fee for noncompetitive bids and receiving proceeds at maturity (like, for example, Vanguard). Today, of course, top CDs still offer a better rate to individual investors, for most of whom the two hundred fifty large guarantee provides a meaningful reduction in risk.

PJW
Also the insurance guarantee is not the same. FDIC guarantees principal and accrued interest only. The "full faith and credit clause" guarantees principle and interest whether accrued or just promised. Those of us who are old enough to remember the savings and loan crisis are most likely very aware of the subtle difference.
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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by grabiner » Wed Apr 22, 2015 7:45 pm

Doc wrote:
DVMResident wrote: I don't understand the advantage of FDIC in this case: isn't FDIC insurance and Treasury bonds exposed to essentially the same default risk*? They're both backed the US government.
...
Also the insurance guarantee is not the same. FDIC guarantees principal and accrued interest only. The "full faith and credit clause" guarantees principle and interest whether accrued or just promised. Those of us who are old enough to remember the savings and loan crisis are most likely very aware of the subtle difference.
As a concrete example, if you buy a 10-year Treasury bond for $10,000 with a 3% yield, you are guaranteed to receive the $300 interest every year, and the $10,000 principal; if rates fall, your bond may be worth more than face value after five years because the Treasury cannot refinance or call it. If you buy a 10-year CD with a 3% yield and the bank goes broke after five years, your CD can be broken. You will receive the $11,593 current value but will have to reinvest it in a five-year CD at the new market rate.
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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by Hogan773 » Thu May 07, 2015 11:23 am

I am new to Bogleheads

Managing money for my parents IRA (this is basically all of their money - they don't have any meaningful taxable accounts)

I have their bond money (about 35%) split about 1/2 Short Term Investment Grade and 1/4 each in High Yield Corporate and Intermediate Term Investment Grade.

We still have about $75,000 sitting in Prime Money Market

I am considering moving this to Ultra Short?

Or is it better to just leave it, and slowly dollar cost average with a bias to Short Term IG?

We could be earning 40bp of yield while we wait, with very minimal principal risk.

I know everyone keeps saying "use online savings account" but that doesn't really help my situation. We can't just take the money out of the IRA and put it in an online savings account to capture the extra 50bp of yield!

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by Ever Ready » Thu May 07, 2015 1:37 pm

Hogan,

There are plenty of financial institutions that offer CD IRAs.
Here are a few sites that you can use to research them:

https://www.depositaccounts.com/ira/

http://www.fatwallet.com/forums/finance ... start=2200

http://www.bankrate.com/cd.aspx?ic_id=h ... _globalnav

Also, check out the Personal Finance (Not Investing) Forum on this site, there are often threads highlighting good CD rates.
You could also post in that forum asking for recommendations.

Best Regards, Ed

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by lack_ey » Thu May 07, 2015 2:00 pm

What's the other 65% of the allocation? If most or all of that is stocks, I don't think you want the 35% to be pretty much all corporate issues.

pascalwager
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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by pascalwager » Thu May 07, 2015 2:39 pm

Also, at Synchrony Bank, you can open an IRA MM account at 0.85% APY with FDIC insurance.

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by pascalwager » Thu May 07, 2015 2:47 pm

lack_ey wrote:What's the other 65% of the allocation? If most or all of that is stocks, I don't think you want the 35% to be pretty much all corporate issues.
Agreed. Maybe start over with a ST and IT Treasury Funds split for a duration of about 4 years.

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by slickwillbo » Fri May 08, 2015 2:10 pm

A fund I use for "cash" in my Schwab account is SIGVX, Ridgeworth US Government Ultrashort. Its expense ratio isn't great (0.38%), and its SEC yield is currently 0.73%. However, that's 73X higher than a money market. :wink:

It's commission free at Schwab, and I use it to hold "cash" and as a manual sweep fund: I put dividends/interest/distributions there until I reinvest it in something else. There is a $50 fee for selling before 90 days, but the FIFO basis keeps that from being a problem.

Here's how it fared from 2007-2010, against Vanguard short-term investment grade (VFSTX):
Image

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by Doc » Fri May 08, 2015 5:27 pm

slickwillbo wrote:Here's how it fared from 2007-2010, against Vanguard short-term investment grade (VFSTX)
You can get protection from an equity bear by going ultra short or very high grade. How about a short treasury fund like Vanguard Short-Term Treasury Inv VFISX

ImageVanguard Short-Term Treasury Inv VFISX

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

There are lots of ways to play this game. The "best" strategy often depends on where you have your assets (transaction costs) and also the size of your "cash like" holdings.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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Re: Vanguard Ultra-Short-Term Bond Fund now available

Post by blevine » Sat May 09, 2015 10:32 am

If you consider VUSFX then consider VWSUX if you pay any income taxes.
Short-term Tax Exempt pays 2bp less but is federally tax free income.
Been around for years, same exp ratio.

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