Vanguard Intermediate-Term Investment-Grade Fund Investor Shares VFICX

Vanguard named Peter Lee as a comanager of Vanguard Intermediate-Term Investment-Grade effective April 16, 2026. The appointment does not alter the strategy's Average People and Process Pillar ratings or its overall Morningstar Medalist Rating.

Lee is not a stranger to this investment-grade sector team. He worked closely with lead manager and sector team head Arvind Narayanan as a trader and associate portfolio manager from 2021 through 2023. Vanguard then elevated him to head of portfolio risk and derivatives for its fixed-income group. Now, the team has brought him back to the team as a comanager on the fund. Lee joined Vanguard in 2012 and has worked in the industry since 2005.

Lee’s experience in portfolio risk and fixed-income derivatives fits this strategy well, especially given the team’s use of various derivatives, including credit default swaps, to refine exposure and sector positioning.

Vanguard Intermediate-Term Investment-Grade’s evolving team executes a disciplined, benchmark-aware process that makes it competitive, though not yet compelling.

The management team continues to deepen its specialization as responsibilities become more defined. Lead manager Arvind Narayanan has managed this fund since late 2019 and now heads Vanguard's investment-grade corporate team. He works with comanager Daniel Shaykevich, who also holds leadership roles, including heading the emerging-markets team. Though not named on this strategy, Thanh Nguyen and Blanton Keh add meaningful depth: Nguyen offers experience in short-term bond markets built over her decade-plus at Vanguard, while Keh, who joined the firm from Western Asset in 2025, brings longer-date corporate bonds expertise. Their complementary inputs across the yield curve broaden decision-making dynamics, though the integration of these perspectives is still taking shape.

The strategy's credit profile began to shift a few months after Narayanan's tenure began in late 2019. While the team keeps BBB exposure within 10 percentage points of its Bloomberg US Credit 5-10 Year Index, the fund increased its BBB weighting nearly threefold between early 2020 and 2022, and that stake now typically accounts for about half of assets, in line with the corporate bond Morningstar Category median. Exposure to junk bonds also increased over the same period and has been modestly above the peer median in recent years. Even if the fund maintains a relatively hefty stake in AAA debt, including US government bonds, the portfolio is now more sensitive to changes in credit markets than in the past. To manage this broader credit stance, the team uses various derivatives, including credit default swaps, to refine exposure and sector positioning within its disciplined framework; the benefits of this increased flexibility should become clearer as results unfold across varied markets.

Moderate interest rate sensitivity (as measured by duration) compared with most rivals remains a feature of the portfolio. At year-end 2025, the fund's roughly 6.0-year duration was 0.7 years shorter than the category median.

The record under Narayanan has been compelling. Since December 2019 (his first full month), the fund’s 2.6% annualized gain through February 2026 ranked near the top decile. A less-than-peer-median duration helped offset the portfolio’s increased credit risk from the end of 2021's third quarter to the beginning of 2022's fourth quarter. Over that period, BBB spreads roughly doubled while the 10-year Treasury yield climbed from about 1.5% to nearly 4.0%. Even so, the fund's Admiral shares lost 17.5% cumulatively over that period, holding better than three-fourths of peers.

The managers follow a disciplined and benchmark-aware framework, while the fund takes more credit risk than it has historically. It earns an Average Process rating.

The framework here is solid. The firm’s senior fixed-income leaders set macro views and define broad parameters around duration, sector allocation, and credit stance. The managers work with investment-grade specialists and the risk team to allocate risk within these guidelines and refine portfolio construction. Their discretion remains modest, and they express ideas through sector themes rather than large issuer bets.

The strategy’s credit profile began shifting a few months after Arvind Narayanan assumed leadership in late 2019. While the team keeps BBB exposure within 10 percentage points of its Bloomberg US Credit 5–10 Year Index, the fund nearly tripled its BBB stake between early 2020 and early 2022 as the benchmark itself increased its allocation. BBB rated bonds now typically represent about half of assets, similar to the category median. Its below-investment-grade exposure also rose and has stayed modestly above peers in recent years. Even with a meaningful allocation to AAA debt, including US government bonds, the portfolio carries more sensitivity to changes in option-adjusted spreads than in prior years.

The fund also benefits from the selective use of derivatives, such as credit default swaps, which give the team an efficient way to adjust overall credit risk. This tool gives them additional flexibility to express views efficiently, though these positions remain modest, and how effectively the managers use them will become clearer as the strategy navigates a wider range of market conditions.

The strategy's tendency to carry less interest rate sensitivity (as measured by duration) than its median peer owes in part to management keeping duration within a year of the index. As of December 2025, the fund's roughly 6.0-year duration was 0.7 years shorter than the category median.

The managers typically keep most of the strategy’s assets in corporate bonds (84% as of December 2025), yet this is below the corporate-bond category median (93%). The remainder of the portfolio consists of securitized debt (2%), Treasuries and agency debt (10%), and a sprinkling of emerging-market debt (4%). Since lead manager Arvind Narayanan joined the fund in November 2019, the team increased its corporate debt exposure, especially in the industrials sector. The fund's 41% industrials stake as of December 2025 was roughly 8 percentage points higher than in September 2019. Ramping up this corporate exposure led to a corresponding decrease in securitized exposure. Over the same period, the fund's securitized stake dropped from 18%.

This fund's credit-risk profile had been muted relative to most peers before 2020, but that’s no longer the case. Granted, the fund still has a consistently top-quartile weighting in debt rated AAA, including US government securities. At year-end 2025, for example, the fund's 10% stake, most of which was in Treasuries, ranked near the peer group's top decile. Between the first quarters of 2020 and 2022, however, the fund increased its BBB weighting nearly threefold, and that stake now typically accounts for about half of the portfolio's assets, in line with the category median. Exposure to junk bonds also increased over the same period and has been modestly above the category median in recent years.

While the management team has been stable in recent years, the supporting group continues to evolve as responsibilities become more clearly defined. It earns an Average People rating.

Experienced managers lead this strategy. Industry veteran Arvind Narayanan brings 24 years of experience and has been at the helm since November 2019. He joined Vanguard from State Street Global Advisors earlier that year, where he led the investment-grade credit team. He now heads Vanguard’s investment-grade corporate sector group and partners with Daniel Shaykevich, who has comanaged this strategy since April 2018 and currently oversees the emerging-market team. Narayanan draws on a seasoned bench of more than 30 investment-grade credit professionals—including eight traders and 24 analysts—who provide fundamental research and relative value insights.

The leadership team continues to strengthen. Although not formally named on this mandate, Thanh Nguyen and Blanton Keh contribute meaningfully to portfolio decisions. Nguyen, who joined in 2013, brings 18 years of industry experience and deep short-term bond market expertise, which she has expanded through her tenure at Vanguard. She took on fund management responsibilities—including work on the Vanguard Ultra-Short Bond ETF—beginning in early 2025. Keh arrived in September 2025 from Western Asset, where he spent more than two decades and managed their corporate-bond strategy. Together, Nguyen and Keh complement Narayanan by providing perspective across the yield curve and informing portfolio positioning, though this structure is still taking shape.

Manager ownership, which reflects alignment with investors, could be better. Narayanan and Shaykevich do not have personal investments in this fund.

Vanguard maintains its High Parent Pillar rating as it continues to grow under new leadership.

CEO Salim Ramji has had a busy first year captaining Vanguard’s crew, and the ship remains pointed in the right direction. The firm made its largest round of fee cuts in early 2025, which came at an estimated cost of USD 350 million. It established a separate division dedicated to its advice and wealth management efforts, a sign that it wants to seriously compete within those lines of business. Asset growth has continued to be a huge success. Only BlackRock’s inflows rival the money Vanguard is taking in. Likewise, the number of clients it serves has more than doubled since 2015.

Despite that success, an ever-growing number of clients has presented a challenge: Vanguard can’t grow its services fast enough to keep up with demand. In some instances, it has had to curb certain services and capabilities or raise fees on others to cope, causing some loyal clients to criticize what they perceive as deteriorating services.

Vanguard has ambitions to bring its disruptive legacy to the bond market. It created roughly a dozen low-cost bond exchange-traded funds for US investors and several others abroad over the 12 months through June 2025. All have low fees in their respective categories, and the actively managed strategies align with Vanguard’s philosophy. They are relatively easy to understand and are conservatively managed.

Vanguard has another opportunity to prove that clients are still its priority. On the surface, its endeavor into the high-fee deal-making world of private assets alongside Wellington and Blackstone looks like a cultural mismatch. So far, the collaboration hasn’t produced anything that’s concerning.

The strategy's short duration has contributed to strong absolute and volatility-adjusted returns versus most corporate-bond category peers in recent years, but the former attribute has been a drag when yields have fallen over the past decade.

Since the start of lead manager Arvind Narayanan's tenure in December 2019 (his first full month), the Admiral shares' 2.6% annualized gain through February 2026 beat the Bloomberg 5-10 Year US Credit Index's 2.4% gain and outpaced roughly 90% of distinct category peers. The strategy's information ratio versus the index (a measure of excess return relative to excess standard deviation) ranked near the top decile.

The strategy increased its credit risk beginning in 2020's second quarter, but entering that year, its credit risk was relatively muted. That helped this strategy hold up better than most rivals during March 2020's pandemic-driven selloff, losing 3.8% compared with the peer median's 7.1% drop. Subsequently, increasing credit risk also helped over 2020's full calendar year, when the fund's 10.4% gain beat the peer median by 44 basis points.

Historically, the strategy's shorter-duration profile has provided a benefit during rate-driven selloffs. When long-term yields rose in 2022, the fund's 6.4-year duration was shorter than that of many peers, which provided some protection; its 13.8% loss, while steep, was less severe than the peer median's 15.8% drop. However, this bias also has been a drag when yields fall, as seen in 2019.

Vanguard Interm-Term Invmt-Grade Inv's Prospectus Adjusted Expense Ratio is 0.2% per year. It places it in the cheapest quintile of the Morningstar US Fund Corporate Bond Category, where the median fee is 0.5% per year. This cost positioning translates into a Medalist Rating Price Score of 1.62, which reflects its relative price positioning within the category. The Price Score ranges from -2.50 (most expensive) to +2.50 (cheapest), with higher scores indicating better cost competitiveness.