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Vanguard Short-Term Treasury ETF: A Conservative Position To Limit Portfolio Risk


  • VGSH invests in one of the safest and most conservative segments of the market with a portfolio of 'AAA' rated short-term Treasuries.
  • The ongoing blowout of corporate credit spreads highlights the value of Treasuries in a market stress situation as is currently being observed.
  • VGSH is a good option for investors seeking capital preservation and to limit portfolio risks given its low-duration profile with a modest monthly income component.
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The Vanguard Short-Term Treasury ETF (NYSE:NASDAQ:VGSH) represents one of the more conservative segments of the market and a real sleep-well-at-night 'SWAN' type of investment. As risk-assets like stocks experience historic levels of volatility with serious concerns over the global economic outlook, investors should warm-up to the idea of capital preservation and low-risk fixed-income. We like VGSH as the short-term maturity and low-duration profile provides refugee in the current market environment. We think an allocation to VGSH can help reduce overall portfolio risk through diversification while still presenting a modest monthly income component with a current yield of 2%. The expense ratio of just 0.05%, VGSH a good low-cost bond fund to ride out market uncertainty.

(source: Vanguard)

VGSH Portfolio Background

There is nothing particularly exciting about short-term treasuries, but that's the point. Investors trading stocks higher during one of the greatest bull markets in history over the past decade could easily be forgiven for overlooking this traditionally very important market segment that is meant to be low risk beyond any yield or appreciation attributes. VGHS is invested in U.S. Treasuries with a maturity between 1 and 3 years.

(source: Vanguard/ image composite by author)

Low-Duration Represents Lower-Risk

VGSH's current average duration of 1.9 years implies a low level of interest rate risk which we feel is particularly important in the current market environment. Duration is a measure of the bond or bond fund's sensitivity to changes in the yield curve. The lower the duration, the less exposed the fund is to volatility in market rates with the risk being that rates rise and the value of the bond portfolio declines. For every point in duration, a bond is expected to lose that corresponding amount in percentage points for every 100-basis point increase in market rates. The opposite is also true in that a bond can appreciate

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This article was written by

Dan Victor, CFA profile picture

15 years of professional experience in capital markets and investment management at major financial institutions. 

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Analyst’s Disclosure: I am/we are long VGSH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (2)

Yatagarasu profile picture
Excellent article. Moved most of my money into cash, VGSH, and SCHO in January, and that's been working well so far. Just curious though, is there any scenario where VGSH takes a major hit? Aside from total collapse of the US, I don't see one. Maybe rampant inflation? Opportunity cost if there's a sudden market rebound in the near future, of course.
You should have bought this fund many years ago!!
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