The Market's Third-Largest Equity ETF Turns 20 as Interest Spikes in a New Bond Product

Source: NYSE

The market's third-largest exchange-traded fund just turned 20.

Vanguard's Total Stock Market ETF (VTI), a market-cap-weighted basket of small, mid and large-cap stocks with neutral coverage, is now two decades old.

It's a testament to the firm's first-ever ETF, which brought lower costs, better benchmark tracking and the idea that ETFs could be stable investment vehicles to the industry, Vanguard's Rich Powers told CNBC on Monday.

"More investors are using ETFs as a strategic asset allocation, and I think we brought that concept to the fore," Powers, Vanguard's head of ETF and index product management, said on CNBC's "ETF Edge."

Though that low-cost fund is still seeing inflows — with $1.2 trillion in total net assets as of last month — investors are also clamoring after one of Vanguard's newer products.

The Vanguard Ultra-Short Bond ETF (VUSB) has accrued around $500 million in assets in the six weeks since its launch last month. It's the firm's first actively managed fixed-income ETF, and its strategy involves trading shorter-term bonds in search of yield.

"This is something that we've been looking at for some time," Powers said, adding that Vanguard launched a mutual fund version of this product over five years ago. "Our investors were increasingly telling us they'd love to have this strategy within the ETF wrapper."

"I think it's a product that's benefiting from the times we find ourselves in," he said. "It's certainly not why we launched it. We think this has enduring long-term investment merit. But if you think about the current interest rate environment and where money market yields are relative to, say, short-term bond yields, this product kind of falls nicely between the sweet spot of those two."

With a one-year duration and a roughly 50-basis-point yield, investors looking out six to 18 months might find VUSB worth considering, hence the spiking interest, Powers said.

"This type of product could be really suitable to pick up that yield when yield is so hard to find today," he said.


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