Vanguard ‘All-in-One Bond Solution’ Coming Soon

Tired of getting low returns on your fixed-income investments? The Vanguard Group is introducing a new mutual fund it bills as an “all-in-one bond solution” that will attempt to outperform the fund’s benchmark.

The Vanguard Core-Plus Bond Fund will launch Oct. 25, although Vanguard also will allow folks to invest in the new fund during an early “subscription period that will start on or around October 12.”

The new fund will be actively managed, and it has a conservative-to-moderate risk profile. It will try to outperform the Bloomberg Barclays U.S. Universal Total Return Index. According to Vanguard:

“Our Fixed Income Group will pursue outperformance of the fund’s benchmark by investing in carefully selected taxable fixed income securities, including those in high-yield corporates and emerging markets debt. Over the past 10 years, more than 88% of our actively managed funds performed better than their peer-group averages.”

Vanguard says that in its attempt to beat the benchmark, it will pursue greater exposure to riskier bonds. As a result, the fund is “expected to have greater volatility of returns and diverge from its benchmark more than [Vanguard’s] Core Bond Fund.”

The expense ratio for the fund will be 0.3% for Investor Shares, and 0.2% for Admiral Shares. (Admiral Shares require higher initial investments in exchange for lower costs.)

It is worth emphasizing that this bond fund is actively managed. That means Vanguard will try to beat its benchmark index by using a strategy that attempts to forecast where the market is headed, and then making investments based on those forecasts.

This differs from investing in passively managed investments like index funds, which simply try to match market performance, not beat it.

Money Talks News founder Stacy Johnson discusses the difference between index funds and actively managed funds — and the pros and cons of each — in the video feature “Are Actively Managed Mutual Funds Better Than Index Funds?”