Vanguard Short-Term Bond ETF Offers Sustainable Income

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

This week’s featured exchange-traded fund (ETF) is Vanguard Short-Term Bond ETF (BSV).

As its name implies, BSV tracks shorter-term U.S. government, investment-grade corporate and investment-grade international dollar-denominated bonds. All of the bonds in BSV’s portfolio have maturities in the duration range of 1-5 years.

With $21.59 billion of total assets under its belt and daily trading volume over $112 million, BSV is a huge fund with a lot of liquidity. The fund is passively managed using index sampling. Its efficient management practices yield a low expense ratio of just 0.07%.

One of the main advantages that this shorter-term bond ETF offers over the long-term bond ETFs is reduced fallout from the Fed’s interest rate hikes, which are expected by many forecasters later this year.

You may be interested to know that BSV is held by many large investment banks, such as Bank of America (19.55 million shares), Wells Fargo & Company (14.94 million shares) and Morgan Stanley (8.02 million shares). Banks do this to diversify their portfolios and hedge against interest risk.

From the chart below, we can see that BSV experienced a sharp decline in late 2016, as it dropped to a low of around $78.75. Since then, the fund has rebounded and currently trades at around $79.80. Year to date, BSV’s return is 0.48%. BSV has a dividend yield of 1.59%.

BSV’s top five holdings in the portfolio are the U.S. Treasury 1.25% Note, 1.49%; U.S. Treasury 1.375% Note, 1.46%; U.S. Treasury 1.25% Note, 1.42%; U.S. Treasury 1.5% Note, 1.39%;  and U.S. Treasury 1.125% Note, 1.35%.

Exclusive  ETF Talk: Seeking Security in Long-Term Bonds

BSV provides constant current income with high credit quality. If you are seeking a safe go-to investment in the bond market, I encourage you to look into Vanguard Short-Term Bond ETF (BSV) as a potential purchase.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

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