Summary: If you are looking for more yield on your short term money than short term government bond funds can offer, and are willing to take some additional risk, then the Vanguard Short Term Investment Grade Bond Fund is an good option.
Commentary: The Vanguard Short Term Investment Grade Bond Fund invests in short term government and corporate debt as well as pools of consumer loans. The fund is designed to offer investors who are willing to take a bit more risk, a higher yielding alternative to money market and short term government bond funds. Currently the fund yields 1.12% which is around twice the yield you would get on its sister fund which invests only in US government securities.
What you have to give up for that additional return is exposing yourself to credit risk. This showed up clearly during the 2008 financial crisis, when the fund dropped in value by 4.47% for the year. However, as credit conditions approved in 2009 the fund had a stellar year, returning 9.30% in 2009.
Short-Term Performance: Excellent. The Vanguard Short Term Investment Grade Bond fund has outperformed the average short term bond fund over the last 1 year by .70%. Over the last 3 years, the fund has outperformed the average by .71% per year on average.
Long-Term Performance: Excellent The fund has outperformed the average short term bond fund over the last 5 and 10 year periods. Over the last 5 years it has outperformed by .74% and over the last 10 by .80% per year on average.
Returns Relative to Risk: Good. The Vanguard Short Term Investment Grade Bond fund invests in riskier credits than its government bond only counterparts. However it also provides a significantly higher yield in order to compensate for that extra risk. The fund’s duration of 2.4 is on the high end for short term bond funds, but still within reason.
Fees: Excellent. The Fund charges a .20% annual expense ratio. If you have $50,000 to invest, the annual expense ratio drops to .11%. As with all funds at Vanguard, there is no load fees charged. You can learn more about bond mutual fund fees here.
Manager Tenure: Good. The fund’s lead portfolio manager Greg Nassour has been involved with the fund since 1998, was named co-manager in 2008 and took over as sole manager of the fund in 2010.