VG Short-Term Treasury vs ETF

Discussion of the Cash portion of the Permanent Portfolio

Moderator: Global Moderator

Post Reply
rhymenocerous
Executive Member
Executive Member
Posts: 153
Joined: Wed May 11, 2011 2:47 pm

VG Short-Term Treasury vs ETF

Post by rhymenocerous » Mon May 16, 2011 1:38 pm

Hey,

I know that much of the criticism about Vanguard's Long-Term Treasury fund, VUSTX, has to do with its average maturity being too low and the fact that 15% of the fund is not held in Treasuries, but in Government Mortgage-Backed Securities.

Vanguard's Short-Term Treasury fund, VFISX, follows Barclays US 1-5 Year Treasury Index and similarly has 15% in Government Mortgage-Backed Securities.  Would this steer people away from the fund for part of their cash holding?  Vanguard recently released a Short-Term Government Bond ETF, VGSH, which follows the Barclays US 1-3 Year Treasury Index and does not hold any GMBS. Does this make it more suitable than VFISX?

Thanks.
User avatar
AdamA
Executive Member
Executive Member
Posts: 2336
Joined: Sun Jan 23, 2011 8:49 pm

Re: VG Short-Term Treasury vs ETF

Post by AdamA » Mon May 16, 2011 2:04 pm

rhymenocerous wrote: Vanguard recently released a Short-Term Government Bond ETF, VGSH, which follows the Barclays US 1-3 Year Treasury Index and does not hold any GMBS. Does this make it more suitable than VFISX?
My guess is yes.  When did it become available?
"All men's miseries derive from not being able to sit in a quiet room alone."

Pascal
rhymenocerous
Executive Member
Executive Member
Posts: 153
Joined: Wed May 11, 2011 2:47 pm

Re: VG Short-Term Treasury vs ETF

Post by rhymenocerous » Mon May 16, 2011 3:38 pm

I think it became available towards the end of 2009.  See: https://advisors.vanguard.com/VGApp/iip ... dETF112009.
User avatar
Tortoise
Executive Member
Executive Member
Posts: 2751
Joined: Sat Nov 06, 2010 2:35 am

Re: VG Short-Term Treasury vs ETF

Post by Tortoise » Tue May 17, 2011 12:35 am

According to the prospectus, VGSH does not track the Barclays 1-3 Year U.S. Treasury Index.  It tracks the Barclays 1-3 Year Government Float Adjusted Index, meaning the fund invests in more than just Treasuries:

"The fund employes a 'passive management'--or indexing--investment approach designed to track the performance of the Barclays Capital U.S. 1–3 Year Government Float Adjusted Index. This Index includes fixed income securities issued by the U.S. Treasury (not including inflation-protected securities) and U.S. government agencies and instrumentalities, as well as corporate or dollar-denominated foreign debt guaranteed by the U.S. government, all with maturities between 1 and 3 years."

It's not immediately clear to me what percentage of VGSH is invested in Treasuries, nor does the prospectus specify a percentage.  A quick Google search didn't really clear things up for me, either.  If you're after 100% Treasuries, I'd stay away from VGSH and stick to ETFs like SHV and SHY.
Last edited by Tortoise on Tue May 17, 2011 1:42 am, edited 1 time in total.
rhymenocerous
Executive Member
Executive Member
Posts: 153
Joined: Wed May 11, 2011 2:47 pm

Re: VG Short-Term Treasury vs ETF

Post by rhymenocerous » Sun May 29, 2011 11:19 pm

Looking at the annual report, it seems that 75% of the fund is in Treasuries and 25% is in agency bonds.
User avatar
Tortoise
Executive Member
Executive Member
Posts: 2751
Joined: Sat Nov 06, 2010 2:35 am

Re: VG Short-Term Treasury vs ETF

Post by Tortoise » Mon May 30, 2011 2:15 am

rhymenocerous wrote: Looking at the annual report, it seems that 75% of the fund is in Treasuries and 25% is in agency bonds.
That's an even lower percentage of Treasuries than VFISX holds, plus VGSH appears not to guarantee a minimum percentage of Treasury holdings like VFISX does. In any case, I suspect Harry Browne would not have recommended either of these Vanguard ST bond funds--despite their heavy weighting of Treasuries--due to the non-Treasury portion of their holdings.
Post Reply