Multi-Sector Income Bond Fund: When you're looking for income
Expert Perspective
|October 15, 2024
Expert Perspective
|October 15, 2024
Your clients want reliable income.
That is why we created Vanguard Multi-Sector Income Bond Fund (Admiral Shares: VMSAX) three years ago this October.
VMSAX is an active credit fund that seeks to provide total return while generating a moderate-to-high level of current income.
Just as a three-legged stool remains steady on uneven surfaces, the three main components in VMSAX are designed to achieve stability and consistent income through exposure to three key asset classes—investment-grade corporates, high-yield, and emerging markets.
Each of these three sectors has historically provided higher yields than government bonds. Although spreads may widen when economic growth slows, the higher resulting yield versus government bonds is a positive for longer-term, income-focused investors.
Due to our consistent exposure to credit sectors and reduced reliance on floating-rate debt instruments, VMSAX has generally maintained a longer duration compared to the average fund in the multisector category. This allows yields to be locked in for a longer period—an especially valuable feature in a declining interest rate environment like the current one.
Since its inception, VMSAX has offered higher yields and longer duration than the category average.
(quarterly average since inception)
Note: 5.58% 30-day SEC yield as of 12/31/2024. A non-money market fund's SEC yield is based on a formula mandated by the Securities and Exchange Commission (SEC) that calculates a fund's hypothetical annualized income, as a percentage of its assets. A security's income, for the purposes of this calculation, is based on the current market yield to maturity (in the case of bonds) or projected dividend yield (for stocks) of the fund's holdings over a trailing 30 day period. This hypothetical income will differ (at times, significantly) from the fund's actual experience; as a result, income distributions from the fund may be higher or lower than implied by the SEC yield.
Source: Vanguard calculations based on Morningstar data, as of December 31, 2024. See the Multi-Sector Income Bond Fund product page for further information, including standardized performance. Past performance is no guarantee of future returns.
Take a closer look at the three main components—all areas where Vanguard has experienced teams dedicated to each sector:
In utilizing VMSAX, the goal is to provide your clients with more income than a core or core plus strategy while offering less downside potential than strategies focused only on “plus” sectors like high-yield, bank loans, portions of emerging markets, or alternatives.
The design and investment process leads to three main points of differentiation against competitors:
The fund is led by three portfolio managers who each focus on one of the three main performance levers: Michael Chang, CFA®, heading up high-yield; Arvind Narayanan, CFA®, overseeing IG corporates; and Daniel Shaykevich leading emerging markets. Together, they supervise a team of more than 60 traders and analysts.
Like all of Vanguard’s active fixed income funds, Vanguard’s investment process helps drive results. The senior investment committee guides macroeconomic and interest rate expectations. Traders and analysts provide bottom-up security selection recommendations to the portfolio managers, who make all final asset decisions.
VMSAX has a gross alpha target of 70 basis points of alpha over a custom credit benchmark. With a flexible investment mandate, three primary investment levers are expected to add outperformance:
Discover more: Vanguard Multi-Sector Income Bond Fund
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.
CFA® is a registered trademark owned by the CFA Institute.
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