Vanguard Short-Term FederalVSGBX

Morningstar Rating

Fund Research and Analysis

by Lawrence Jones

Vanguard Short-Term Federal continues to display the merits we've lauded it for.

The most enduring advantage this Fund Analyst Pick holds over rivals is its low costs. At 0.21%, the fund's annual levy is well less than the lowest cost quintile among short government category offerings, a group that includes some surprisingly pricey rivals. Read more

Kudos

Cautious profile keeps credit risk to a minimum.

Low expenses have helped produce solid returns. Read more

Risks

The fund should not be mistaken for a money market fund. It can lose money in rising interest-rate environments.

The fund's performance may lag its edgier peers when investors favor riskier fare. Read more

Strategy

This offering's sister fund, Vanguard Short-Term Treasury VFISX, must keep 80% of its assets in Treasuries, but this fund has no such restriction. In fact, management usually holds a very modest Treasury stake, preferring to hold agency bonds and mortgages. Read more

Management

Ron Reardon took over from John Hollyer in January 2005. Reardon, who joined Vanguard in 2001, had been on the firm's mortgage and derivatives team. As with Vanguard's other bond funds, this offering's broad interest-rate policy is set by Bob Auwaerter, who has led the firm's fixed-income group since June 2003. Read more

Inside Scoop

This cautious fund typically invests in a mix of government-agency debt and government mortgage-backed securities. A proven combination of cautious management and rock-bottom fees make it a standout in the short-term government-bond category. Read more

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