Vanguard Files for ETF Covering Entire US Corporate Bond Market

"The new offering complements our existing lineup of total market funds and will provide investors with low-cost, broadly diversified exposure to the U.S. investment grade corporate bond market," said John Hollyer, global head of the Vanguard Fixed Income Group, in a statement.

A Vanguard spokesman said the fund of fund structure will allow the new ETF "to benefit from $39 billion in immediate scale from the underlying funds, which hold more than 5,500 bonds," as well as from narrower bid/ask spreads compared with a traditional fund that invests in assets directly.

Todd Rosenbluth, director of ETF and Mutual Fund Research at CFRA, says the structure of the new fund makes sense for Vanguard because it "should help keep trading costs low, enable monthly rebalancing with less effort and allow Vanguard to gather assets more quickly."

He expects the new ETF will hold more than three times the number of issues as iShares Investment Grade Corporate Bond (LQD), which focuses on only the most liquid bonds. The new ETF will also complement Vanguard's Total Bond Market (BND) fund, which is heavily invested in government bonds, says Rosenbluth.

Vanguard manages $4.5 trillion in global assets, including $1.2 trillion in fixed income. Corporate bonds account for more than a quarter of its fixed income assets. Vanguard's  Fixed Income Group will serve as the investment advisor to the new ETF.

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