Looking to invest in a basket of Canadian short-term bonds in the form of a single investment product?
In that case, this Vanguard VSB ETF review might help you see if it’s a good fit for you.
Invest In A Group Of Short-Term Bonds
Invest in the Vanguard VSB ETF to gain exposure to the performance of a broad Canadian bond index with a short-term dollar-weighted average maturity.
- Offers virtually guaranteed monthly cash distributions
- Low-cost exposure to a group of Canadian short-term average maturity investment-grade bonds
- Provides low-risk and steady passive income
- Interest rate risk
What Is Vanguard VSB ETF?
Vanguard Canadian Short-Term Bond Index ETF (VSB) is a low-cost fund that offers you exposure to a broad group of Canadian short-term dollar-weighted average maturity bonds. The fund was listed on the TSX on November 29, 2011.
VSB.TO is currently trading at close to $22.49.
Vanguard VSB Key Facts
As of July 15, 2022:
- Ticker Symbol: VSB.TO
- Exchange: Toronto Stock Exchange
- Assets Under Management: $1.264 Billion
- MER: 0.11%
- 12-Month Trailing Yield: 2.12%
- Currency Traded: CAD
- Eligible Accounts: Most registered (TFSA, RRSP, etc) and non-registered available
Vanguard VSB ETF MER And Fees
Vanguard VSB ETF has a management fee of 0.10% and a 0.11% Management Expense Ratio (MER).
Vanguard VSB ETF Dividend Yield
As of June 30, 2022, Vanguard VSB ETF’s dividend yield is as follows:
- 12-month trailing yield: 2.12%
- Distribution yield: 2.47%
- Dividend schedule: Monthly
The fund has been designed as a core holding that provides you with passive income through monthly cash distributions.
Vanguard VSB Performance And Returns
Here is the performance of a hypothetical $10,000 invested in Vanguard VSB since its inception:
Showing 30 Nov 2011 – 30 Jun 2022:
| Fund Type | Month End | YTD | 1YR | 3YR | 5YR | 10YR | Since Inception |
|---|---|---|---|---|---|---|---|
| VSB (Market Price) | −0.75% | −4.39% | −4.77% | −0.06% | +0.78% | +1.24% | + 1.31% |
| VSB (NAV) | −0.79% | −4.33% | −4.78% | −0.03% | +0.79% | +1.27% | + 1.31% |
| Benchmark | −0.75% | −4.26% | −4.65% | +0.07% | +0.91% | +1.40% | + 1.45% |
Go to the Vanguard website for real-time performance numbers of VSB.
What Does Vanguard VSB ETF Invest In?
Vanguard VSB ETF seeks to provide you with monthly cash distributions by tracking the performance of a broad Canadian bond index with a short-term dollar-weighted average maturity.
The fund emulates the performance of the Bloomberg Global Aggregate Canadian Government/Credit 1-5 Float Adjusted Bond Index to achieve that goal.
The underlying index invests in short-term Canadian investment-grade bonds distributed by various issuers, including government and corporate bonds.
Vanguard VSB ETF Portfolio Characteristics
As of 30 Jun 2022:
| Fundamentals | Fund | Benchmark |
|---|---|---|
| Number of Bonds | 491 | 495 |
| Yield to Maturity | 3.6% | 3.6% |
| Average Duration | 2.8 years | 2.8 years |
| Average Maturity | 3.1 years | 3.1 years |
| Average Coupon | 2.4% | 2.3% |
| Short-term Reserves | 0.1% | — |
Vanguard VSB ETF Market Allocation
As of 30 Jun 2022:
| Country | Region | Fund |
|---|---|---|
| Canada | North America | 91.9% |
| United States of America | North America | 4.6% |
| Supranational | Other | 2.2% |
| Germany | Europe | 0.8% |
| United Kingdom | Europe | 0.3% |
| Other | Other | 0.1% |
| Australia | Pacific | 0.1% |
| Total | 100.0% |
Vanguard VSB ETF Sector Weighting
This section of my Vanguard VSB ETF review will discuss the sector weightings of the fund’s assets.
Here is a look at a table that shows the distribution of the fund across various credit issuers:
As of June 30, 2022:
| Issuer | Fund | Benchmark |
|---|---|---|
| Treasury/Federal | 27.2% | 27.4% |
| Financial Institutions | 22.3% | 22.2% |
| Provincials/Municipals | 20.9% | 21.1% |
| Agencies | 16.8% | 16.8% |
| Industrials | 9.4% | 9.4% |
| Supranational | 2.2% | 2.2% |
| Utilities | 1.1% | 1.0% |
| Cash | 0.2% | — |
| Total | 100.0% | 100.0% |
Vanguard VSB ETF Region Exposure
As of 30 Jun 2022:
| Region | Fund | Benchmark |
|---|---|---|
| North America | 96.10% | 96.60% |
| Other | 2.40% | 2.20% |
| Europe | 1.40% | 1.10% |
| Pacific | 0.10% | 0.10% |
| Total | 100.00% | 100.00% |
Vanguard VSB ETF Holding details
As of 30 Jun 2022:
| Holding Name | % of Market Value | Coupon/Yield | Maturity Date |
|---|---|---|---|
| Canadian Government Bond | 2.90% | 2.75% | 01 Aug 2024 |
| Canadian Government Bond | 2.40% | 0.50% | 01 Sep 2025 |
| Canadian Government Bond | 2.27% | 0.75% | 01 Feb 2024 |
| Canada Housing Trust No 1 | 2.15% | 2.90% | 15 Jun 2024 |
| Canadian Government Bond | 2.04% | 2.00% | 01 Sep 2023 |
| Canadian Government Bond | 1.96% | 0.25% | 01 Apr 2024 |
| Canadian Government Bond | 1.83% | 1.00% | 01 Sep 2026 |
| Canadian Government Bond | 1.83% | 1.50% | 01 May 2024 |
| Canadian Government Bond | 1.81% | 1.25% | 01 Mar 2027 |
| Province of Ontario Canada | 1.80% | 2.60% | 02 Jun 2025 |
Vanguard VSB ETF Bond Maturity Weightings
Its weighted average maturity is 3.1 years as of June 30, 2022. This section of my Vanguard VSB ETF review will provide a brief overview of the various bond maturities of the fund’s holdings.
As of June 30, 2022:
| Maturity | Fund | Benchmark |
|---|---|---|
| Over 5 Years | 5.4% | 5.3% |
| 4 – 5 Years | 20.4% | 20.5% |
| 3 – 4 Years | 20.1% | 20.1% |
| 2 – 3 Years | 25.4% | 25.4% |
| 1 – 2 Years | 28.5% | 28.7% |
| Under 1 Year | 0.2% | 0.0% |
| Total | 100.0% | 100.0% |
Vanguard VSB ETF Distribution By Credit Quality
As of 30 Jun 2022:
| Credit Rating | Fund | Benchmark |
|---|---|---|
| AAA | 46.8% | 46.9% |
| AA | 31.5% | 31.7% |
| A | 13.7% | 13.4% |
| BBB | 8.0% | 8.0% |
| NR | 0.2% | 0.0% |
| Total | 100.0% | 100.0% |
Vanguard VSB ETF Risk and Volatility
As of 30 Jun 2022:
| Fund Type | R-Squared | BETA | ALPHA | Standard Deviation | Sharpe Ratio |
|---|---|---|---|---|---|
| Fund | 1.00 | 1.00 | − 0.01 | 2.09% | -0.31 |
| Benchmark | — | — | — | 2.08% | -0.26 |
Vanguard VSB ETF Alternatives
This section of my Vanguard VSB ETF review will discuss a few bond ETFs you could consider as alternatives to investing in VSB ETF.
iShares Broad USD High Yield Corporate Bond ETF (USHY) is a fund designed for long-term investors. The bond ETF offers exposure to the US high-yield corporate bond market, focusing on products from smaller issuers to increase its yield potential.
Boasting an average maturity rating of 6.03 years as of July 21, 2022, the fund boasts a juicy 5.75% 12-month trailing dividend yield that could make it a viable alternative to Vanguard VSB ETF despite its higher MER of 0.22% compared to 0.11% for VSB ETF.
Vanguard VSB ETF Vs. Vanguard VSC ETF – What Is The Best Aggregate Bond ETF?
Vanguard Canadian Short-Term Corporate Bond Index (VSC) is another bond ETF issued by Vanguard ETFs. The fund also provides you returns by investing in a group of short-term dollar-weighted Canadian ETFs.
However, Vanguard VSC ETF narrows its focus on short-term and investment-grade non-government corporate bonds. It comes with an average maturity of 3.6 years as of June 30, 2022.
The fund boasts a 2.72% 12-month trailing dividend yield. You could consider VSC ETF a better aggregate bond ETF than Vanguard VSB because it comes with the same 0.11% MER while delivering slightly higher monthly cash distributions.
iShares Core Canadian Universe Bond Index ETF (XBB) is another Canadian Bond ETF you could consider. XBB ETF has a broader focus on the Canadian investment-grade bond market by tracking the performance of the FTSE Canada Universe Bond Index.
It pays monthly cash distributions at a 2.83% 12-month trailing yield. As of July 21, 2022, its average weighted maturity is 10.36 years, and it comes with a lower MER of 0.10%.
You could consider it as a viable alternative to Vanguard VSB ETF as a long-term passive income-generating asset.
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Conclusion
It is always good to diversify your investment portfolio by adding fixed-income assets that provide you with guaranteed monthly returns.
The predictable passive income can mitigate the losses from more volatile asset classes in your portfolio.
Investing in Vanguard VSB ETF offers a solution to gain exposure to the performance of a broad range of short-term maturity investment-grade bonds issued by various Canadian issuers.
Vanguard VSB ETF does not offer very high-yielding returns, but it compensates for it through lower costs and significantly reduced capital risk.
The TSX boasts other bond ETFs that offer relatively higher-yielding returns. Check out my list of the best bond ETFs in Canada to see my breakdown of fixed-income ETFs you can consider for this purpose.
My breakdown of the best monthly dividend ETFs in Canada can also help you identify funds that pay monthly cash distributions.
Consider checking it out if you do not mind investing in funds that focus on equity securities to provide monthly dividend income.
