Vanguard active bond funds: Serving as a stabilizer

Make up geometric shape podium for product design, 3d rendering, 3d illustration

Vanguard active bond funds: Serving as a stabilizer

Vanguard Perspective


March 21, 2024

It’s not just returns that matter on the way to investing success—it’s also the amount of risk taken to get there.

Bonds historically have helped stabilize portfolios when markets—particularly stock markets—grow volatile. When stocks have endured their worst periods of performance, most types of bonds have typically held their value.That’s why one of the purposes of fixed income is to help keep client portfolios resilient.

We believe prudent, insightful, and low-cost active management can produce funds that outperform their benchmarks and peers while helping portfolios mitigate risk. In fixed income in particular, there is an expectation for funds to play defense and offense at the same time.

One of the most relied-upon statistics to capture that dynamic is the Sharpe ratio,2 which factors in volatility along with returns. By this measure, our funds do well compared with their peer groups.

At Vanguard, our active fixed income team strives to capture the upside and defend against the downside. We know that clients who remain calm are more likely to stick to their financial plans, and those who do are more likely to see those plans succeed, which is the ultimate goal of investing.3



Better risk-adjusted returns

Vanguard active bond funds vs. peer-group average by Sharpe ratio

Four circles showing the percentage of Vanguard active bond funds that outperformed their Refinitiv peer group averages, as measured by risk-adjusted returns, over the following periods. Over one year, 79% of Vanguard funds were higher than average. Over three years, 85% of Vanguard funds were higher than average. Over five years, 89% of Vanguard funds were higher than average, and over 10 years, 96% were higher than average.

Notes: This graphic shows the percentage of Vanguard active bond funds that outperformed the average return of their peer group of mutual funds, according to the Sharpe ratio. For the one-year period, 45 of 57 Vanguard bond funds outperformed their peer group averages. For the three-year period, 47 of 55 Vanguard bond funds outperformed their peer group averages. For the five-year period, 48 of 54 Vanguard bond funds outperformed their peer group averages. For the ten-year period, 47 of 49 Vanguard bond funds outperformed their peer group averages. Results will vary for other time periods. Only funds with a minimum one-, three-, five-, or ten-year history, respectively, were included in the comparison.

Source: Lipper, a Thomson Reuters Company, and ViFi, as of December 31, 2023.

Check out our active bond fund lineup

1 Renzi-Ricci, Guilio, Harvey, Oliver, and Harshdeep, Ahluwalia. The Role of Bonds in a Low-Yield Environment. Vanguard, 2021.

2 The Sharpe ratio is calculated by dividing an investment’s return, minus the risk-free rate of return, by the standard deviation of returns for the investment. Higher numbers are better because they show a higher return for the amount of risk taken.

3 Kinniry, Francis M., Jaconetti, Colleen M., DiJoseph, Michael A., Walker, David J., and Quinn, Maria C., 2022. Putting a Value on Your Value: Quantifying Vanguard Advisor’s Alpha®. Valley Forge, PA.: The Vanguard Group.

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

Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.

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

Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

Bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer’s ability to make such payments will cause the price of that bond to decline.

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. U.S. government backing of Treasury or agency securities applies only to the underlying securities and does not prevent share price fluctuations. Unlike stocks and bonds, U.S. Treasury bills are guaranteed as to the timely payment of principal and interest.

Although the income from a municipal bond fund is exempt from federal tax, you may owe taxes on any capital gains realized through the fund’s trading or through your own redemption of shares. For some investors, a portion of the fund’s income may be subject to state and local taxes, as well as to the federal Alternative Minimum Tax.

This article is listed under

Some alt text

Save articles

Save articles to your profile using the bookmark icon.