Vanguard Total Corporate Bond ETF (VTC)

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spdoublebass
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Vanguard Total Corporate Bond ETF (VTC)

Post by spdoublebass » Fri Nov 10, 2017 6:26 pm

I read the other two (three?) threads on this ETF.

I have often heard (read) Mr. Bogle say something along the lines that a little bit of extra corporate bonds to TBM or a IT Bond fund (such as BIV) isn't a bad idea.

Would this be a vehicle to get those extra corporate bonds? I'm just curious. I am happy with TBM for myself for now. I just have not read any discussions of this on the other threads. The only other corporate bonds I read that some people use here is the ST ones (VCSH).
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Re: Vanguard Total Corporate Bond ETF (VTC)

Post by coincollector » Fri Nov 10, 2017 7:21 pm

I took the concept to be the same as BND but with just corporate bonds. If your looking to own more corporate bonds but don't want to choose a specific time length, just like you wouldn't have too with BND, then should be perfect

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Re: Vanguard Total Corporate Bond ETF (VTC)

Post by dbr » Fri Nov 10, 2017 7:23 pm

Yes, this would be a vehicle to get more corporate bonds and at a duration similar to TBM, which one would assume you would want. Buying very short bonds is a different issue entirely more related to finding a bond fund that is almost cash like.

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Re: Vanguard Total Corporate Bond ETF (VTC)

Post by Artsdoctor » Fri Nov 10, 2017 7:30 pm

Interesting. It's so new that it hasn't even had its first distribution yet. The website information is pretty spartan. I don't see the duration listed. It's supposed to be a combination of three ETFs: the short-tern, intermediate-term, and long-term corporate bond ETFs. Maybe I'm missing the stats, but you might want to wait until more data are available on Vanguard's web page.

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Re: Vanguard Total Corporate Bond ETF (VTC)

Post by spdoublebass » Mon Nov 13, 2017 10:13 pm

Yeah, I'll hold off until more information is out.

I was trying to separate a small portion of my bonds (which are all in TBM) from TBM based on duration, just to have a little more control over what to rebalance with. The more I think about it though, it might be better to separate a small portion of the corporates and treasury bond funds from TBM instead.

I have no qualms with TBM, tinkering a bit with the bonds makes things a bit more entertaining and allows me to not mess with the equity side of things :beer
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Re: Vanguard Total Corporate Bond ETF (VTC)

Post by duckcalldan » Tue Nov 14, 2017 7:41 am

With the exception of enough VFSUX (ST investment grade fund) to live on for about 18 months in case of a stock selloff, all of my bond allocation is in my rollover IRA. It’s comprised of 2/3 VGIT (V* intermediate govt bond) and 1/3 VCIT (same but corporate). This arrangement allows me to tailor the govt/corp ratio to my liking, and also eliminates LT bonds as found in BND and other ETFs.

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Re: Vanguard Total Corporate Bond ETF (VTC)

Post by spdoublebass » Fri Nov 17, 2017 5:58 pm

duckcalldan wrote:
Tue Nov 14, 2017 7:41 am
With the exception of enough VFSUX (ST investment grade fund) to live on for about 18 months in case of a stock selloff, all of my bond allocation is in my rollover IRA. It’s comprised of 2/3 VGIT (V* intermediate govt bond) and 1/3 VCIT (same but corporate). This arrangement allows me to tailor the govt/corp ratio to my liking, and also eliminates LT bonds as found in BND and other ETFs.
Did you eliminate LT bonds in case interest rates increase?


I guess I'll get more to the point. I split my equities 50/50 between domestic market weight and Global market weight. I do this by holding only TSM and VT (Total World). I like that even though there is overlap between these two funds, they adjust with market weight. So right now I'm at around 26% International overall.

I know I could only hold TBM and call it a day, but I kept the 50/50 split between the two portfolios even on the bond side. So I hold half of my fixed income at Global weight, which I accomplish by using TBM, TIBM, and EM Bonds.

For the other half of my FI I have been using TBM, but I was always wishing to break it down a little. I didn't know if I should break it down by duration (ST/IT/LT) or by types of bonds (Corporate/Treasury). To be honest, this sounds great in my head, but when you think about how to implement it, I have to stop and ask myself does this serve a purpose?

I think it could for rebalancing purposes, but then again at the end of the day how much different would it be from just holding TBM?
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Re: Vanguard Total Corporate Bond ETF (VTC)

Post by lack_ey » Sat Dec 02, 2017 8:03 pm

posts above this are 2+ weeks old

=== bumping old thread with new info ===

Looks like the portfolio composition, which people have been wondering and asking about, is not yet available on Vanguard's site or Morningstar, though I did see it elsewhere.

Code: Select all

VCSH 	Vanguard Short-Term Corporate Bond ETF 	        37.52%
VCLT 	Vanguard Long-Term Corporate Bond ETF 	        31.99%
VCIT 	Vanguard Intermediate-Term Corporate Bond ETF 	30.47%
CASH 	Cash 	                                         0.02%
as of 2017-12-01, via Fidelity (har har)

That's actually not far from 1/3 of each.

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Re: Vanguard Total Corporate Bond ETF (VTC)

Post by spdoublebass » Sat Dec 02, 2017 9:20 pm

lack_ey wrote:
Sat Dec 02, 2017 8:03 pm
posts above this are 2+ weeks old

=== bumping old thread with new info ===

Looks like the portfolio composition, which people have been wondering and asking about, is not yet available on Vanguard's site or Morningstar, though I did see it elsewhere.

Code: Select all

VCSH 	Vanguard Short-Term Corporate Bond ETF 	        37.52%
VCLT 	Vanguard Long-Term Corporate Bond ETF 	        31.99%
VCIT 	Vanguard Intermediate-Term Corporate Bond ETF 	30.47%
CASH 	Cash 	                                         0.02%
as of 2017-12-01, via Fidelity (har har)

That's actually not far from 1/3 of each.
Lack_ey thank you for that info.

Two things I noticed on the link you posted:
1. The percentages you listed were for the 3 ETF's that VTC is comprised of...but the maturity breakdown is
Intermediate Term 46.86%
Long Term 32.99%
Short Term 19.19%

2. It has over 20% foreign bonds.
do the individual ETF's hold that many foreign bonds? I did not realize that at all. I'm not opposed to it, just didn't know it.


Personally, for control reasons only, I'm trying to decide on how to break apart a piece of TBM. At first I was thinking of breaking it down into BSV, BIV, BLV (ST, IT, LT bond funds), but then when this ETF was introduced I was wondering if it would be better to divide it TBM into Treasury/Corporates, which I think for control purposes might be a good idea.
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Re: Vanguard Total Corporate Bond ETF (VTC)

Post by lack_ey » Sat Dec 02, 2017 10:07 pm

spdoublebass wrote:
Sat Dec 02, 2017 9:20 pm
Two things I noticed on the link you posted:
1. The percentages you listed were for the 3 ETF's that VTC is comprised of...but the maturity breakdown is
Intermediate Term 46.86%
Long Term 32.99%
Short Term 19.19%
Sure, based on different breakpoints of what constitutes short, intermediate, and long. VCSH uses a 1-5 yr index, though many consider 4-5 yr as intermediate, and many short-term indexes cover 1-3.
spdoublebass wrote:
Sat Dec 02, 2017 9:20 pm
2. It has over 20% foreign bonds.
do the individual ETF's hold that many foreign bonds? I did not realize that at all. I'm not opposed to it, just didn't know it.
Yeah, these are in total bond as well. If HSBC, Mitsubishi, Novartis, Royal Bank of Scotland, etc. issue a USD bond, it's investment grade and can be in these indexes. I think even Anheuser-Busch would be counted as foreign too.

For that matter, many US companies issue non-USD bonds that end up in the international bond index fund.
spdoublebass wrote:
Sat Dec 02, 2017 9:20 pm
Personally, for control reasons only, I'm trying to decide on how to break apart a piece of TBM. At first I was thinking of breaking it down into BSV, BIV, BLV (ST, IT, LT bond funds), but then when this ETF was introduced I was wondering if it would be better to divide it TBM into Treasury/Corporates, which I think for control purposes might be a good idea.
Either way, you don't care about the mortgage-backed securities?

Anyway, I would split by bond type rather than duration, though it depends on what you're trying to achieve.

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Re: Vanguard Total Corporate Bond ETF (VTC)

Post by jhfenton » Sat Dec 02, 2017 10:33 pm

spdoublebass wrote:
Sat Dec 02, 2017 9:20 pm
Personally, for control reasons only, I'm trying to decide on how to break apart a piece of TBM. At first I was thinking of breaking it down into BSV, BIV, BLV (ST, IT, LT bond funds), but then when this ETF was introduced I was wondering if it would be better to divide it TBM into Treasury/Corporates, which I think for control purposes might be a good idea.
I split my bonds between intermediate treasuries (VSIGX) and intermediate corporates (VICSX), keeping enough treasuries to rebalance in a market crash and credit crunch like 2008, but benefiting from the higher return of the corporates in general. I also keep a small amount of short-term corporates (VSCSX) for my tactical rebalancing.

I don't like the risk-reward on long-term bonds, and I don't see the need for short treasuries.

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Re: Vanguard Total Corporate Bond ETF (VTC)

Post by David Jay » Sat Dec 02, 2017 10:34 pm

spdoublebass wrote:
Fri Nov 10, 2017 6:26 pm
I just have not read any discussions of this on the other threads. The only other corporate bonds I read that some people use here is the ST ones (VCSH).
Corporate Intermediate Term (VCIT as an ETF) is an intermediate term (like BND) fund, it holds investment grade corporates. That is what I use to reduce the government bias in Total Bond.
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Re: Vanguard Total Corporate Bond ETF (VTC)

Post by Munir » Sun Dec 03, 2017 12:11 pm

If one does not use ETFs, the Intermediate Investment Grade Fund (VFIDX) has nearly 70% corporates with a duration of only 5.5 years. It has a superior total return than other Vanguard intermediate bond funds with a vanguard risk rating of only 2. It is useful to increase one's ownership of corporate bonds. I have not read any remarks by Jack Bogle about this fund and wonder why.

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Re: Vanguard Total Corporate Bond ETF (VTC)

Post by Doc » Sun Dec 03, 2017 3:17 pm

In response to
spdoublebass wrote:
Sat Dec 02, 2017 9:20 pm
Personally, for control reasons only, I'm trying to decide on how to break apart a piece of TBM. At first I was thinking of breaking it down into BSV, BIV, BLV (ST, IT, LT bond funds), but then when this ETF was introduced I was wondering if it would be better to divide it TBM into Treasury/Corporates, which I think for control purposes might be a good idea.
lack_ey wrote:
Sat Dec 02, 2017 10:07 pm
Either way, you don't care about the mortgage-backed securities?
Because of the negative convexity of MBS I also avoid them per Swedroe.
When interest rates go up, fixed maturity bond prices go down and vice versa. Mortgage backed securities follow the same general rule with a fairly notable exception that relates to changes in the expected maturity of a mortgage backed security as interest rates change.
http://www.snl.com/interactive/lookandf ... 7464/3.pdf

The point being that when interest rates go up the home owner tends to not move or refinance and the duration increases which extends the maturity just when the price of the MBS goes down. The opposite applies when interest rates go down. This amounts to a "free" put or call on the part of the borrower which is something the lender (the MBS holder) doesn't like. Whether there is compensation enough in the MBS pricing is subject to debate. I don't like debating so I avoid MBS. The idea of separate positions in Corporates and Treasuries to produce a core bond position without using TBM I think is a good idea.
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Re: Vanguard Total Corporate Bond ETF (VTC)

Post by jhfenton » Sun Dec 03, 2017 3:55 pm

Munir wrote:
Sun Dec 03, 2017 12:11 pm
If one does not use ETFs, the Intermediate Investment Grade Fund (VFIDX) has nearly 70% corporates with a duration of only 5.5 years. It has a superior total return than other Vanguard intermediate bond funds with a vanguard risk rating of only 2. It is useful to increase one's ownership of corporate bonds. I have not read any remarks by Jack Bogle about this fund and wonder why.
I have repeatedly considered VFIDX in lieu of my separate stakes in VSIGX (intermediate treasuries) and VICSX (intermediate corporates), but I just can't miss how VFIDX performed in 2008-9 when it might would have been needed for rebalancing. So every time I consider it, I end up deciding to keep the separate funds, even though VICSX has a 25 bp purchase fee.

Before anyone asks, I use VICSX instead of VCIT despite the purchase fee for several reasons:

(1) It is a one-time fee.
(2) VCIT usually trades with a comparable premium (21 bp median premium according to ETF.com) (plus a 2 bp spread). (Granted, you might get the premium back on a sale.)
(3) Dividends in the mutual fund are reinvested immediately at NAV (with no purchase fee, no premium, and no spread). ETF dividends are reinvested with a market-on-open order a few days later.
(4) I don't plan to sell VICSX in the foreseeable future, so the position has a long time to ride, making it a very low fee on an annual basis.
(5) They may eventually drop the purchase fee (at which point the premium probably disappears).

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Re: Vanguard Total Corporate Bond ETF (VTC)

Post by spdoublebass » Sun Dec 03, 2017 4:01 pm

Doc wrote:
Sun Dec 03, 2017 3:17 pm


The point being that when interest rates go up the home owner tends to not move or refinance and the duration increases which extends the maturity just when the price of the MBS goes down. The opposite applies when interest rates go down. This amounts to a "free" put or call on the part of the borrower which is something the lender (the MBS holder) doesn't like. Whether there is compensation enough in the MBS pricing is subject to debate. I don't like debating so I avoid MBS. The idea of separate positions in Corporates and Treasuries to produce a core bond position without using TBM I think is a good idea.
What I don't like about MBS is that it's 23.47% of TBM. If it were less, I wouldn't really care to be honest.

I know people go with BIV (IT term bond index) which has a total of 1882 bonds. VTC, which is a combination of VCSH/VCIT/VCLT should have a combined total of 5647 bonds. The numbers aren't up yet on Vanguards website. If you add that to an IT treasury fund like VGIT, it would get you closer to the total number of bonds in TBM.

I must admit, part of me wanting to do this is to keep me from tinkering with the stock side of my portfolio. Will this make a difference? I don't know, but I feel it won't hurt anything.

For me, Bonds are hard to fully understand. When people say "you have to ask yourself why you are holding them", that used to not really register with me. Now I think I am starting to understand what they mean. If you take risk on the bond side of your portfolio you need to be able to answer why you are doing so.
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Re: Vanguard Total Corporate Bond ETF (VTC)

Post by spdoublebass » Sun Dec 03, 2017 4:19 pm

jhfenton wrote:
Sun Dec 03, 2017 3:55 pm

I have repeatedly considered VFIDX in lieu of my separate stakes in VSIGX (intermediate treasuries) and VICSX (intermediate corporates), but I just can't miss how VFIDX performed in 2008-9 when it might would have been needed for rebalancing. So every time I consider it, I end up deciding to keep the separate funds, even though VICSX has a 25 bp purchase fee.

VICSX/VCIT has a average duration of 6.4 years. I'm waiting to see what VTC will be. If my math is right based of off the percentage breakdown from Lack_ey's post above, VTC might have a little longer duration of about 7.5 years.
Plus VICSX holds 1741 bonds and VTC should hold around 5647, would you consider VTC possibly being an option for a corporate holding? Or would you prefer to stick to only IT Bonds?

(please note I'm asking from the perspective of someone starting now and not suggestion that someone like yourself sell one fund and replace it with another)



Before anyone asks, I use VICSX instead of VCIT despite the purchase fee for several reasons:

(1) It is a one-time fee.
(2) VCIT usually trades with a comparable premium (21 bp median premium according to ETF.com) (plus a 2 bp spread). (Granted, you might get the premium back on a sale.)
(3) Dividends in the mutual fund are reinvested immediately at NAV (with no purchase fee, no premium, and no spread). ETF dividends are reinvested with a market-on-open order a few days later.
(4) I don't plan to sell VICSX in the foreseeable future, so the position has a long time to ride, making it a very low fee on an annual basis.
(5) They may eventually drop the purchase fee (at which point the premium probably disappears).
Nice and clear reasons. Nicely stated.
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Re: Vanguard Total Corporate Bond ETF (VTC)

Post by jhfenton » Sun Dec 03, 2017 4:29 pm

spdoublebass wrote:
Sun Dec 03, 2017 4:19 pm
VICSX/VCIT has a average duration of 6.4 years. I'm waiting to see what VTC will be. If my math is right based of off the percentage breakdown from Lack_ey's post above, VTC might have a little longer duration of about 7.5 years.
Plus VICSX holds 1741 bonds and VTC should hold around 5647, would you consider VTC possibly being an option for a corporate holding? Or would you prefer to stick to only IT Bonds?

(please note I'm asking from the perspective of someone starting now and not suggestion that someone like yourself sell one fund and replace it with another)
I believe your 7.5 calculation is dead on. When VTC was first announced, I looked up the index and found an SSGA UCITS (PDF) following the same index:

10/31/17 numbers:
Effective Duration 7.57
Average Maturity in Years 11.05
Yield to Maturity 3.19%

Maturity Weight %
0 - 1 Year -0.20
1 - 3 Years 19.17
3 - 5 Years 17.61
5 - 7 Years 8.62
7 - 10 Years 23.07
10 - 20 Years 9.33
> 20 Years 22.41

Credit Quality Weight %
Aaa 1.93
Aa 9.68
A 38.80
Baa 49.33
Below Baa 0.26


So you have about the same YTM as VCIT/VICSX, but a longer maturity and duration, and a hunk of unattractive (to me) corporate bonds with >20 year maturities.

I just don't see the attraction. The intermediate part of the yield curve seems the most attractive to me.

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Re: Vanguard Total Corporate Bond ETF (VTC)

Post by tj » Wed Dec 27, 2017 1:40 pm

What's strange is the Vanguard page doesn't show allocations to sub-ETF's, it show actual bond holdings.

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