On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth discussed the Vanguard Core Plus Bond ETF (VPLS) with Chuck Jaffe of Money Life. The pair discussed several topics related to the fund to give investors a deeper understanding of the ETF overall.

Chuck Jaffe: One fund, on point for today. The expert to talk about it. Welcome to the ETF of the Week, where we examine trending, new, newsworthy, unique, and intriguing exchange traded funds with Todd Rosenbluth. He’s the head of research at VettaFi, and at VettaFi.com, you’ll find all the tools you need to make yourself a better, smarter, more confident investor in exchange traded funds.

Todd Rosenbluth, it’s great to chat with you again!

Todd Rosenbluth: It’s great to be with you again, Chuck.

Chuck Jaffe: Your ETF of the Week is …

Todd Rosenbluth: The Vanguard Core Plus Bond ETF. VPLS.

Chuck Jaffe: VPLS, the Vanguard Core Plus Bond Fund. And you know, there’s that list. New, newsworthy, unique, intriguing.

Well, you wouldn’t think of a Vanguard core bond fund as being most of those things. But this is a relatively new fund. This fund only started at the end of 2023, and it’s Vanguard’s entry into active management on a core bond fund.

So, why this fund now? How much of it is just because it’s Vanguard and it’s new? How much of this is market conditions and the rest?

Todd Rosenbluth: So, market conditions and the rest is a key reason we’re focusing on this ETF from Vanguard. Vanguard has a long history of active management within the fixed income space. They just have had it in the mutual fund wrapper. This is one of those ETFs they launched. Two of them that came to market, as you mentioned, in December.

But, as you know and the audience knows, we’re now in a new environment for fixed income investing. The Fed cut interest rates by 50 basis points. They’re likely to be cutting again and perhaps again heading into 2025. We think the experts at Vanguard can be a great firm to work with. And this fund is doing exactly what we would like to see out of the gate.

It’s outperforming an index-based approach, taking a similar strategy.

Chuck Jaffe: As for this fund right now, most investors have some measure of bond fund, if they’ve gotten old enough and have started investing in bonds. And this is a basic core fund. So if someone has an actively managed core bond fund, do you bother with this one? Or this is what you’re adding if you have a core bond fund, but you’ve been using an index fund?

Todd Rosenbluth: So, there are a couple of key words in the name of the fund I want to draw attention to. One is that it’s an ETF. Because when you’re using the phrase “fund,” Vanguard offers a mutual fund version of this that’ll have the word “fund” at the end of it.

So, the Vanguard Core Plus Bond ETF, and then that “plus” is relevant. So, if you own the broad aggregate bond index, you might own BND, which is Vanguard’s Total Bond Index ETF. Or you might own the mutual fund version of that as well. Vanguard happens to have the largest of the index-based bond strategies today. This ETF, VPLS, takes on additional credit risk.

It can go into the noninvestment-grade world, and in fact has moderate exposure into BB and other nonInvestment-grade bonds. You also get the benefits of active management trying to find the highest-quality companies for the best risk/reward opportunities. So, we think if you own BND, this can be a complement to it. But also this could be a great strategy to be the — I don’t want to use the word “core” — but the main part of your fixed income portfolio.

And then you could use other index-based ETFs from Vanguard or others to add additional exposure that you might have. And I just want to come back to why I am not saying “core.” So there is a Vanguard Core Bond ETF. We’re not talking about that one. This is the Core Plus Bond ETF that has noninvestment-grade bond exposure.

Chuck Jaffe: Yeah, the difference is important, because the noninvestment-grade is going to distinctly make a difference in performance. That said, we know that bond funds tend to have rocky patches as they get through the interest rate cutting cycle. And this rate cutting cycle is going to be a fairly long one. I don’t talk to too many people who think the Fed’s going to be, you know, two or three and done.

They think we’ve got cuts coming almost at every meeting next year, at least, as they’re doing their outlook. So, help people understand what your expectations would be for bond funds generally in a rate-cutting environment.

Todd Rosenbluth: So, if the Fed continues to cut interest rates, that’s a good thing from a total return potential opportunity, a price appreciation opportunity for the bonds inside a portfolio. And so this should be a bet. 2025 should be a better year than than the last few years. 2024 has been relatively good. VPLS is up I think around 5%, if memory serves, the last time I looked at it.

So, it’s having a decent year. It’s actually outperforming the index-based BND, notably because it’s getting rewarded for its active management. But this is a good environment to be taking advantage of bond strategies and active bond strategies. Whereas of course, you as the investor don’t have to have a great crystal ball in terms of the number of rate cuts. The team at Vanguard, or whoever your manager happens to be, can certainly help you out there.

Chuck Jaffe: This is a new fund, but it’s Vanguard. Do you have a threshold when it comes to new funds, you know, when it’s not the biggest-name companies? When it’s not the Vanguards, the BlackRocks, Fidelitys, and what have you? If somebody else came out and said, hey, it’s my new core-bond-plus strategy, would you want to give them time, or make sure that they got to critical mass?

Todd Rosenbluth: I think it’s important to know who’s running the fund and what else they are running. So the team that’s behind the Vanguard Core Plus Bond ETF is also running the mutual fund, the Vanguard Core Plus Bond Mutual Fund, or just has the word “fund” in it, as well as a couple of other active fixed income strategies at Vanguard.

And I’d encourage folks to go to Vanguard’s website and learn more about those individual funds, make sure they’re looking at apples-to-apples comparisons and having all the data. But yes, you want to make sure you’re comfortable with the team that’s running your active strategy, whether that’s the individual portfolio managers, or the firms that the firm has that expertise to be able to carry the water for you in the fixed income area that you want them to do.

Chuck Jaffe: It’s the VPLS. The Vanguard Core Plus Bond ETF. Make sure you know that you’re looking at the right one. VPLS. It’s the ETF of the Week, from Todd Rosenbluth at VettaFi. Todd, great stuff as always. See you again next week.

Todd Rosenbluth: See you next week, Chuck.

Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And yes, that’s me. I’d love it if you check out my hour-long weekday show by going to MoneyLifeShow.com, or by searching for it wherever you find your favorite podcasts. And if you’re searching for more and better information on your favorite exchange traded funds, look no further than VettaFi.com, where they’ve got a full suite of tools to help you.

They’re on Twitter or X at @Vetta_Fi, and Todd Rosenbluth, their head of research, my guest, well he’s on X too. He’s at @ToddRosenbluth.

The ETF of the Week is here for you every Thursday. Make sure you don’t miss any by following along. And we’ll be back with another great fun for you next week.

Until then, happy investing, everybody!

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