Vanguard High Yield Corporate Fund

^#22 in High Yield Bond

U.S. News evaluated 166 High Yield Bond Funds. Our list highlights the top-rated funds for long-term investors based on the ratings of leading fund industry researchers.

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Performance

The fund has returned 12.19 percent over the past year, 10.56 percent over the past three years, 9.04 percent over the past five years, and 7.61 percent over the past decade.

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Summary

If investors can handle the risk in lower-rated bonds, the Vanguard High-Yield Corporate Fund offers strong long-term returns with low expenses and experienced management.

As of May 03, 2013, the fund has assets totaling $18.26 billion. Its portfolio consists primarily of B- and BB-rated higher risk corporate bonds, also known as “junk bonds,” with small holdings of investment-grade bonds.

The fund dazzled investors in 2009. Morningstar cautions investors that the fund's returns are unusual, and says, "Investors expecting a quick pop or future returns on par with the fund's recent showing are likely to be disappointed." Management takes a somewhat less risky approach than other funds in its category. As of the end of June, most of the fund's holdings were rated B or BB. So far in 2010, the fund looks poised to do well again, though fixed-income in general continues to face the possibility of rising interest rates The fund has returned 12.19 percent over the past year and 10.56 percent over the past three years.

Vanguard closed the fund to new investors in June 2003 and reopened it in December 2003. Morningstar says, “Management’s avoidance of the market’s riskiest credits and its buy-and-hold style have us optimistic the portfolio is well positioned to weather what remain rough economic conditions.” The fund has returned 9.04 percent over the past five years and 7.61 percent over the past decade.

Investment Strategy

The fund invests at least 80 percent of its assets in corporate bonds that are rated below Baa. The fund may not invest more than 20 percent of its assets in any of the following: bonds with credit ratings lower than B or the equivalent, convertible securities, preferred stock, and fixed- and floating-rate loans of medium-to-lower-range credit quality.

Role in Portfolio

Morningstar calls the fund a supporting player in a portfolio. “This fund’s higher-quality take on high-yield investing is appropriate for conservative types seeking a steady stream of income,” Morningstar says. “For more aggressive investors, however, a fund that emphasizes lower-rated credits might be a better fit.”

Management

Mike Hong became comanager of the fund in February 2008 and took over as manager in June 2008 after the retirement of Vanguard bond guru Earl McEvoy, who had managed the fund since 1984. Hong also is the vice president and fixed income portfolio manager of Wellington Management, where he has worked since 1997. 

Fees

Vanguard High Yield Corporate Fund has an expense ratio of 0.23 percent.

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Risk

Because the fund focuses on higher-quality issues of high-yield bonds, primarily BB- and B- rated bonds, it may lag its peer group in performance, which may invest in high-yield bonds of lower quality. The fund is also more sensitive to interest-rate changes.

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Fund Opinions

The fund's Value Line Overall Rank, a measure of risk-adjusted performance and relative growth in fund returns, is 1 on a scale of 1 to 5, with 1 being the best and 5 the worst.

Value Line 2013-03-12

The fund's Value Line Growth Persistence rank, which awards funds that consistently outperform their broad universes, is 1 for one year, 1 for five years, and 2 for 10 years. Scores are on a 1 to 5 scale, with 1 being the best and 5 the worst.

Value Line 2013-03-12

The fund's Value Line Risk Rank, a measure of volatility, is 4 on a scale of 1 to 5, with 1 being the least volatile and 5 the most.

Value Line 2013-03-12

In the annual Lipper/Barron’s Fund Families Survey for 2009, Vanguard ranks 40th out of 61 fund families surveyed.

2010-02-17

Morningstar gives this fund a stewardship rating of B on a scale of A to F, saying, “This isn’t Jack Bogle’s Vanguard, but it’s still a fine steward of shareholders’ wealth. The family’s mutual ownership structure helps it offer low fees and keep investor interests paramount. A blemish-free regulatory record and loyal fund owners and employees also help make this a trustworthy fund.”

Morningstar 2010-02-17

In the annual Lipper/Barron’s Fund Families Survey for 2009, Vanguard ranks 40th out of 61 fund families surveyed.

2010-02-17

Morningstar gives this fund a stewardship rating of B on a scale of A to F, saying, “This isn’t Jack Bogle’s Vanguard, but it’s still a fine steward of shareholders’ wealth. The family’s mutual ownership structure helps it offer low fees and keep investor interests paramount. A blemish-free regulatory record and loyal fund owners and employees also help make this a trustworthy fund.”

Morningstar 2010-02-17