By Andrew Welsch

Vanguard is launching another actively managed bond exchange-traded fund, further expanding its active and fixed income offerings amid rising investor and advisor demand.

The Vanguard Multi-Sector Income Bond ETF (VGMS), which has an expense ratio of 0.3%, is designed to generate returns and higher income by investing in investment-grade credit, high-yield corporates, emerging market bonds, and structured products, the company said Wednesday.

VGMS is Vanguard's seventh actively managed bond ETF. The fund's launch comes as investors and advisors increasingly favor ETFs over mutual funds for their transparency and tax-efficiency. Asset flows into ETFs this year reached $444 billion as of May, and are on track to match last year's record $1 trillion haul, according to State Street Global Advisors. Investors have also been putting more money in fixed income funds at a time when bond yields have become more attractive. Bond ETFs pulled in $37 billion in May, marking their third largest intake on record, according to State Street.

"The income opportunities in fixed income available today for clients is much more exciting than it has been in years," says Rebecca Venter, senior fixed income product manager at Vanguard.

In recent years, asset management companies have been launching more ETFs to meet investor demand as well as to make up for outflows from traditional mutual funds. For its part, Vanguard has been ramping up its actively managed ETF lineup, and in particular in fixed income, where the Malvern, Pa.-based company believes it has ample room to grow. Although Vanguard has about $10 trillion in assets, only about $2.5 trillion are in fixed income, Venter says. "It's not like we are saturated with fixed income," she says.

Venter adds that the company is seeing strong demand from advisors for actively managed bond ETFs. Vanguard is "seeing a huge move toward ETFs" among advisors, she says. "We have seen it toward equities, and now on the fixed income side over the last couple of years almost all the flows have been into ETFs."

Many advisors prefer actively managed bond funds, seeing that as an area where active management can shine. In stocks, passive index funds have eclipsed active funds because of the challenge of outperforming equity benchmarks such as the S&P 500.

Vanguard says that 90% of its active fixed income funds and ETFs have outperformed their benchmarks over the past 10 years. Five of Vanguard's six active fixed income ETFs are outperforming their benchmarks this year as of May, and four of the five are in the top quartiles of their Morningstar peer groups. The funds are Vanguard Core Tax-Exempt Bond ETF, Vanguard Short Duration Tax-Exempt Bond ETF, Vanguard Ultra-Short Bond ETF, Vanguard Core Bond ETF, and Vanguard Core-Plus Bond ETF. This tally of top performers excludes the Vanguard Short Duration Bond ETF, which launched less than two months ago.

Investors and advisors can expect more ETF launches from Vanguard. "I wouldn't say we have launched our last mutual fund, but we are focused on the ETF structure," Venter says.

Write to Andrew Welsch at andrew.welsch@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

June 11, 2025 08:59 ET (12:59 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.