Are you getting the credit you deserve?

Retail clients held $2.9 trillion in money market funds at the end of April 2025. But how much of this money is earmarked for near-term needs, and how much could be better off invested elsewhere?

That’s a good question to ask your clients. Not only because of what’s best for them, but because excess cash holdings represent potentially lost business—most advisors understandably don’t charge management fees on money markets.

There is a new way for clients’ so-called lazy money to get active, with Vanguard’s new active Short Duration Bond ETF, ticker VSDB.

The impact: VSDB is designed to offer high current income while maintaining limited price volatility. This provides the potential for yields materially higher than money markets or many other short-term-focused products. Just as higher-octane gas can offer better performance for vehicles designed to use it, this product can offer improved performance for investors looking to calibrate the short-term portion of their portfolios for funds not needed in the near term. 

That means you can get the credit you deserve for putting your clients’ money to work.

The portfolio: The ETF focuses on U.S. investment-grade bonds, including Treasuries, agencies, corporates, and asset-based securities along with the active leeway to expand into high yield and the bonds of foreign countries, including emerging markets.

• A key feature is that the fund will have the ability to invest up to 25% in high yield, though that is expected to be around 10% in most market environments.
• Short-term corporate credit typically offers higher yields than Treasuries of comparable duration. Short-term credit has less exposure to volatility that can come from changes in interest rates compared with intermediate- and long-term bonds.

Higher yields and lower exposure to volatility has helped short-term credit achieve a strong track record over the past 15 years.

 

The benchmark: Portfolio managers will seek to outperform the Bloomberg US Universal 1-5 Year Float-Adjusted Index, which is the short-term version of the Bloomberg US Universal Float-Adjusted Index, the same benchmark Vanguard uses for Vanguard Core-Plus ETF.

• Since its 2005 inception, 90% of the calendar-year returns for Bloomberg Universal 1-5 Year Float-Adjusted Index have been positive.

The cost: VSDB’s expense ratio is 0.15%, which is half of the asset-weighted expense ratio for the Morningstar Short-Term Bond category as of April 30, 2025.

 

More diversified

VSDB is a more diversified offering than our other short-term products and focused predominantly on credit.

The ETF is designed to be more flexible, with wider guardrails and more levers to access alpha, than Vanguard’s other short-term offerings. That’s to take full advantage of the capabilities of Vanguard Fixed Income Group, Vanguard’s global active bond fund team, which has been running active funds for nearly 50 years.

The range of security types in the fund allows the experienced portfolio managers to implement their best ideas across the sector teams in a part of the yield curve where more opportunity for outperformance can exist. Managers can also use tools such as interest-rate swaps, mainly to mitigate risk.

The result is a win-win for advisors, who have the chance to provide higher yields to clients and expand their managed assets at the same time.

For advisors looking for to implement a cash-tiering strategy, Vanguard offers an array of ETFs:

VBIL Vanguard 0–3 Month Treasury Bill ETF

VGUS Vanguard Ultra-Short Treasury ETF

VUSB Vanguard Ultra-Short Bond ETF

VSDM Vanguard Short Duration Tax-Exempt Bond ETF

BSV Vanguard Short-Term Bond ETF

VCSH Vanguard Short-Term Corporate Bond ETF

VGSH Vanguard Short-Term Treasury ETF

 

Notes:

For more information about Vanguard funds, visit vanguard.com to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.

All investing is subject to risk including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. Past performance is no guarantee of future results.

Bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer’s ability to make payments.

Investments in bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk.

Bonds of companies based in emerging markets are subject to national and regional political and economic risks and to the risk of currency fluctuations. These risks are especially high in emerging markets.

High-yield bonds generally have medium- and lower-range credit-quality ratings and are therefore subject to a higher level of credit risk than bonds with higher credit-quality ratings.