Vanguard Intermediate-Term Corporate Bond Index Fund Admiral Shares VICSX

Vanguard Intermediate-Term Corporate Bond offers an inexpensive and well-constructed portfolio of investment-grade corporate bonds set to mature in five to 10 years.

The Bloomberg US 5-10 Year Corporate Bond Index, which underpins this fund, sweeps in investment-grade corporate bonds with five to 10 years remaining to maturity. The index excludes riskier types of bonds such as floating-rate notes, contingent capital securities, and bonds with equity features. Eligible bonds must also have at least USD 300 million outstanding face value, which increases the investability of the index. It weights bonds by their market value, which is an efficient and cost-effective approach to the vast and relatively liquid investment-grade bond market.

The fund tends to overweight higher-quality bonds compared to its average Morningstar Category peer. It parked more than 40% of its assets in A rated bonds as of May 2025, 10 percentage points more than the category average. More flexible active category peers often take on a small position in high-yield bonds instead in their quest to add incremental value. Bypassing riskier bonds has helped this fund better protect against widening credit spreads during credit shocks.

Nonetheless, over half of the fund’s portfolio carries BBB credit ratings, in line with the category average and other broad passive category peers. The fund’s more conservative credit risk profile might miss out on some upside when credit spreads tighten, but it should still participate in most rallies.

Its intermediate-term remit slightly skews its duration to the shorter side of its category. As of May 2025, its average duration stood at 6.1 years compared with 6.5 years for the category average. This gap fluctuates depending on market trends; it was wider in 2020 and 2021 when companies issued longer-term bonds amid low interest rates, and it narrowed in 2022 when interest rates rose.

The fund remains a precise tool for investors targeting high-quality, intermediate-term corporate bonds. Its low fee should preserve its performance edge over the long run. The ETF share class has beaten the category average by 39 basis points between its 2009 inception and May 2025.

This is a well-constructed passive portfolio of intermediate-term corporate bonds. Market-value weighting its holdings is an efficient approach to the relatively liquid investment-grade corporate bond market. It earns an Above Average Process Pillar rating.

The fund tracks the Bloomberg US 5-10 Year Corporate Bond Index, which holds investment-grade corporate bonds with between five and 10 years remaining until maturity. Eligible bonds must have a fixed coupon rate and at least USD 300 million outstanding face value. It excludes riskier types of bonds, such as contingent capital securities and bonds with equity features. The index weights selected bonds by their market value. The market does a decent job pricing these bonds in the vast and liquid investment-grade corporate bond market, so this is an efficient approach.

The fund’s focus on intermediate-term bonds shortens its duration relative to the average category peer, as it excludes the longer end of the maturity spectrum. As of May 2025, its average duration of 6.1 years is shorter than that of the category average by a few months. This gap can widen when companies begin issuing longer-term debt. This was the case during the low-rate environment a few years ago as companies preferred to issue more long-term bonds, which lengthened the market’s average duration. The fund benefited from its shorter duration when rates increased in 2022, alongside other intermediate-focused corporate bond funds.

The fund often takes less credit risk than its peers. Active managers have the flexibility to reach into junk bonds to incrementally improve their yields, while this fund cannot. Instead, this fund overweights A rated bonds by typically parking more than 40% of its assets here. The fund’s 50% stake in BBB rated bonds is in line with that of the category average and ensures the fund will still perform well when credit rallies, albeit to a lesser extent than more aggressive peers. In return, the fund should outperform peers when credit spreads widen.

The largest investment-grade corporate borrowers often come from the financial services industry, and the strategy tilts toward the sector accordingly. Financial institutions typically represent a third of the fund’s portfolio and account for many of its top issuers. Nonetheless, with 700-plus issuers and 2,000 bonds, the fund’s performance should not be disproportionately affected by any single company.

Vanguard's fixed-income index team has a lot of advantages. It taps into a global network of portfolio managers, sector specialists, and trading desks to deliver accurate index tracking in the markets it touches. It earns an Above Average People Pillar rating.

Experienced managers make up Vanguard’s team. They’re supported by a deep bench of talent that allows them to focus on portfolio construction and tracking performance. Each fund has a lead manager that collaborates with traders and sector specialists to ensure tracking performance stays within well-defined guardrails.

Specialization extends in many directions. ETF specialists help manage creation and redemption baskets, while a dedicated data team handles index changes and corporate actions. International specialists help manage portfolios in local markets outside the US to keep costs down and tracking tight.

Many bonds aren’t available for trading, so index funds cannot hold every bond in an index. Despite that drawback, Vanguard’s team has continued to invest in new ways to improve the precision of its tracking efforts while keeping a lid on trading costs. It recently expanded its quantitative unit, which developed an optimization tool that incorporates traders' insights and liquidity data to improve tracking performance.

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.

Differences between this portfolio and the category average have helped the exchange-traded share class outperform the category average by 39 basis points annualized from its 2009 inception through May 2025. The fund’s low fee and broad portfolio contributed to its excess returns, and its tilt toward quality and lower duration also worked to its benefit. Most recently, it outpaced the category average by 1 percentage point during the first five months of 2025 as investors flocked to safer assets amid volatility in the market.

The fund has consistently held up better than peers when credit spreads widen, thanks to its relatively muted credit risk profile. The fund outpaced its category average by 1.45 percentage points during the coronavirus-driven shock from Feb. 20 through March 23, 2020. On the other hand, it will miss out when credit risks are rewarded. The fund trailed the average category peers by 1.86 percentage points between late March and December 2020 as credit spreads rapidly compressed.

The fund’s shorter duration has also added to its relative performance. The fund beat the category average by 1.1 percentage points in 2022 as assets with longer duration suffered from rising rates and inflationary fears. This duration gap was wider coming into 2022 as low interest rates incentivized firms to issue longer-term bonds and skewed the average duration of the market. The fund’s current duration is not too far off from that of its average peer and will likely result in smaller performance differences.

Vanguard Interm-Term Corp Bd Idx Admiral's Prospectus Adjusted Expense Ratio is 0.06% 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 2.21, 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.