An Excellent Conservative Bond Fund With Low Expenses

Brian Moriarty: Vanguard Short-Term Federal is an excellent choice for investors in the market for a conservative bond fund. The fund only invests in debt linked to the U.S. government. This includes agency debt that is explicitly backed by the government, like the Tennessee Valley Authority and Export-Import Bank, as well as implicitly backed debt, like Fannie Mae and Freddie Mac. It will also invest in U.S. Treasuries and government mortgage-backed securities.

This portfolio of government-backed debt takes credit risk off the table. At the same time, the short, 2.3-year duration limits the interest-rate sensitivity of the fund. This creates a solid, defensive fund that should hold up well in a variety of market environments. Returns have been strong. Over the trailing 15 years, the fund ranks in the top 20% of its category.

But the most attractive feature of this fund is the low expense ratio. This is important in a low-yielding, short-term bond fund. The investor share class, ticker VSGBX, has a $3,000 investment minimum and charges just 20 basis points.