A new Vanguard fund is aimed at investors who are hungry for income and willing to take a bit more risk to get it. The firm launched the Vanguard Multi-Sector Income Bond ETF (VGMS) last week. The actively-managed fund will focus in large part on riskier parts of the fixed income universe, including high yield corporate credit. That strategy may meet some skepticism given concerns about an economic slowdown, but the multi-sector area is one where active management is often seen as a positive. “We still view this strategy as one that investors will want to invest in even in a bit of an uncertain economic environment” said Rebecca Venter, senior fixed product manager at Vanguard. “We think it’s a great time for the ETF because after we’ve been through a period of a lot of volatility in the markets year to date, we view the credit market as very ripe for active management.” The holdings of the fund will include riskier assets than the so-called core fixed income offerings from Vanguard and other major asset managers. At the high end, the fund can hold as much as 65% of its portfolio in high yield corporate bonds, according to the fund’s prospectus . The benchmark it is compared against includes 50% high yield corporate debt, 30% investment grade corporate debt, 10% emerging market bonds and 10% asset-backed securities, Venter said. “On average, that’s where you should expect the exposures to be. However, it is an actively managed portfolio and it’s going to be managed dynamically,” Venter added. High yield corporate bonds, often called junk bonds, are issued by companies with weaker credit ratings that are theoretically more at risk of suffering losses in bankruptcy. The new ETF has not been around long enough to have a stated yield, but a Vanguard mutual fund with a similar strategy has a SEC yield of 5.51%. The “below investment grade flexibility” of the fund will be used in part to generate higher income, Vented added. The fund has an expense ratio of 0.30%. Vanguard is not alone in rolling out new multi-sector or high yield bond funds in recent months. Some other recent launches include the F/m High Yield 100 (ZTOP) , Polen High Income ETF (PCHI) and the Thornburg Multi Sector Bond ETF (TMB) . Both high yield and broad-based categories of bond ETFs have seen net inflows this year, according to FactSet. To be sure, funds with more high yield debt can see poor price performance even if there is not a big surge in bankruptcies. For example, the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) declined four straight days after President Donald Trump announced new tariffs on April 2, leading to a total drawdown of 3.9%.
