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VSB ETF Review 2023: Vanguard Canadian Short-Term Bond Index ETF Explained

ETFs, or exchange-traded funds, are an excellent method for investors to diversify their portfolios with little research or experience necessary. 

As more ETFs have come onto the market in recent years, mutual funds have slowly fallen out of favour. The higher expense ratios charged by mutual funds mean they are no longer the go-to passive investing option.

ETFs not only come with lower fees but also offer convenience. Like stocks, ETFs are available for trading on discount brokerages such as Wealthsimple and Questrade. 

For those looking for safer investments, bond ETFs are a great option. While investing in individual bonds can be a complex process, these ETFs make it easy to add bonds to your portfolio.

This Vanguard Canadian Short-Term Bond Index ETF (VSB) review will detail its holdings, performance, fees, advantages and disadvantages, and how Canadian investors may buy it.

What is VSB?

The Vanguard Canadian Short-Term Bond Index ETF, or VSB, is a Vanguard Canada ETF that trades on the Toronto Stock Exchange.

VSB tracks the Canadian bond index with short-term, dollar-weighted average maturity. This means it tracks Canadian bonds with a maturity of 1-5 years.

Canadian investors can look to Vanguard bond ETFs in Canada to diversify their portfolios.

Generally, bonds are referred to as fixed-income assets. They do not provide a lot of long-term capital growth but pay regular monthly distributions.

Here are some key facts for VSB:

  • Inception date: November 30, 2011
  • Number of bonds: 477
  • Yield to Maturity: 3.2%
  • Average Duration: 2.6 years
  • Average Maturity: 3.0 years
  • Average Coupon: 2.3%
  • Management fee: 0.10%
  • MER: 0.11%
  • Assets under management: $1.35 billion
  • 12-month trailing yield: 2,08%
  • Distribution yield: 1.89%
  • Distribution frequency: Monthly
  • Eligible accounts: RRSP, TFSA, RRIF, TFSA, DPSP, RDSP
  • Currency: CAD
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VSB Holdings

VSB holds a total of 477 short-term bonds with an average maturity date of 3.0 years.

Here are the top ten holdings in VSB:

Holding Name% of Market ValueMarket ValueFace AmountCoupon YieldMaturity Date
Canadian Government Bond2.41604%$32,767,148.39$33,849,000.000.75%February 1, 2024
Canadian Government Bond2.25052%$30,522,305.80$32,847,000.000.50%September 1, 2025
Canada Housing Trust No 12.14249%$29,057,237.13$29,004,000.002.90%June 15, 2024
Canadian Government Bond1.97306%$26,759,396.96$28,714,000.001.25%March 1, 2027
Canadian Government Bond1.96587%$26,661,769.69$26,850,000.002.00%September 1, 2023
Province of Ontario, Canada1.82577%$24,761,780.26$25,128,000.002.60%June 2, 2025
Canadian Government Bond1.82343%$24,730,016.21$26,625,000.001.00%September 1, 2026
Canadian Government Bond1.77460%$24,067,756,81$25,179,000.000.25%April 1, 2024
Canadian Government Bond1.68221%$22,814,746,96$23,329,000.000.25%May 1, 2023
Canada Housing Trust No 11.66060%$22,521,634,38$23,375,000.001.95%December 15, 2025

Here is the breakdown of bond issuers in VSB:

Bond IssuerWeighted Allocation in VSB Fund
Treasury/Federal27.6%
Financial Institutions22.7%
Provincials/Municipals20.3%
Agencies16.5%
Industrials9.5%
Supranational2,2%
Utilities1.1%
Cash0.2%

Here is the credit rating by allocation in VSB:

Credit RatingWeighted Allocation in VSB Fund
AAA46.8%
AA31.5%
A13.2%
BBB8.3%
NR0.2%

And finally, here is the distribution by credit maturity in VSB:

Maturity TimeWeighted Allocation in VSB Fund
Over 5 Years5.1%
4-5 Years18.6%
3-4 Years23.0%
2-3 Years22.9%
1-2 Years30.4%
Under 1 Year0.2%

VSB Returns and Performance

Since its inception, VSB has provided investors with an average annual return of 1.37% and a cumulative return of 15.27%.

Here is a visual of how the NAV price and Market Price have performed each year since inception:

YearTotal Return by NAVTotal Return by Market Price
2021-1.03%-1.05%
20205.14%5.14%
20192.86%3.19%
20181.79%1.69%
20170.00%-0.36%
20160.77%0.98%
20152.41%2.25%
20142.82%2.82%
20131.55%1.58%
20121.69%1.52%

As always, past performance is not an indication of future results.

VSB Fees

VSB has a very reasonable management fee of 0.10% and MER of 0.11%.

This is significantly lower than what you pay the average equity mutual fund manager in Canada (1.98%).

Pros and Cons of VSB ETF

Pros

  • VSB has very low management and MER fee.
  • It pays a monthly distribution that provides nice cash flow for investors looking for a hedge to market volatility.
  • It has a 46.8% allocation to AAA credit bonds and a 31.5% allocation to AA credit bonds.

Cons

  • It has very little capital growth, as with most fixed-income assets.
  • It has a higher MER than the Vanguard Canada Aggregate Bond Index ETF (VAB) and a lower distribution yield than the Vanguard Canada Long-term Bond Index ETF (VLB).

VSB vs VAB

VAB is the Vanguard Canada Aggregate Bond Index ETF established in November of 2011 and trades on the Toronto Stock Exchange.

It tracks, to the best of its ability, the Bloomberg Global Aggregate Canadian Float Adjusted Bond Index.

VAB has a management fee of 0.08% and an MER of 0.09%. It also has a monthly distribution yield of 2.62%. Learn more about this fund in our VAB review.

VSB vs ZAG

ZAG is the BMO Aggregate Bond Index ETF established in January 2010 and trades on the Toronto Stock Exchange.

It is designed to replicate the performance of the FTSE Canada Universe Bond Index, net of expenses.

ZAG has a management fee of 0.08% and an MER of 0.09%. It also has a monthly distribution yield of 3.49%. Learn more about BMO ETFs.

VSB vs XSB

XSB is the Blackrock iShares Canada Core Canadian Short Term Bond Index ETF. It was established in November of 2000 and trades on the Toronto Stock Exchange.

It provides Canadian investors with low-cost exposure to investment-grade bonds with maturities that range from 1 to 5 years.

XSB has a management fee of 0.09% and an MER of 0.10%. It also has a monthly distribution yield of 2.11%.

Here’s our breakdown of iShares Canada ETFs.

How to Buy the Vanguard VSB ETF in Canada

The VSB ETF and other Vanguard Canada ETFs can be bought at any Canadian brokerage or discount brokerage.

High transaction fees can eat into your long-term gains, so discount brokerages with low trading fees are a preferred option for self-directed traders looking to cut fees. Here are a few of the best:

Questrade

Questrade is a popular discount brokerage in Canada for investors of all ages and experience levels. It offers several assets, including options, bonds, ETFs, stocks, currencies, precious metals, etc.

Questrade allows zero-commission buying for ETFs, but it does charge a minimum of $4.95 when you sell an ETF.

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Wealthsimple Trade

Wealthsimple Trade is a popular discount brokerage, particularly for younger Canadian investors.

It has zero-commission trading for Canadian stocks and ETFs. Over the course of time, this can help compound your gains.

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CIBC Investor’s Edge

If you want to do your trading with a big bank brokerage service, CIBC Investor’s Edge is a great option.

Although it doesn’t offer free ETF trading, its fees are significantly lower than the average for the industry. You can learn more about the platform in this review.

Qtrade

Qtrade is another discount brokerage in Canada for investors of all ages and experience levels.

QTrade lists around 100 Canadian ETFs that are free to trade. Although VSB is not on the list, there are several others on the list.

Is VSB a Good Buy?

Fixed Income assets are certainly not for everyone. Some investors will find them too tame since they are not designed for long-term capital growth.

In terms of fixed-income ETFs, VSB is a good buy because bonds with short-term maturity dates tend to be less volatile than long-term bonds.

VSB also offers a very competitive MER and distribution yield, especially when compared to some of its peers from other companies.

VSB Review FAQ

Is VSB a Good Investment?

Yes, for Canadian investors looking to add a few of the best bond ETFs to their portfolio, VSB makes for a good investment. Fixed-income ETFs are used to diversify your portfolio, provide cash flow through monthly dividends, and hedge against market volatility.

Does VSB Pay Dividends?

Absolutely, although when we refer to payments from bonds, they are called distributions. VSB currently pays a monthly distribution yield of 1.89% and a 12-month trailing distribution yield of 2.08%.

Many investors look to bonds as a safe haven from volatility. In exchange for minimal long-term capital growth, bond ETFs pay out a generous monthly distribution.

How Do I Buy Bond ETFs in Canada?

Are you looking to add some of the best bond ETFs in Canada? You’re in luck because every brokerage offers bond ETFs to invest in. Some brokerages will charge more for trading. If you are looking for a discount brokerage to save on fees, look to Questrade, Wealthsimple Trade, CIBC Investor’s Edge, or QTrade.

Related:

Vanguard Canadian Short-Term Bond Index ETF Review
4.7

Summary

Vanguard Canadian Short-Term Bond Index ETF (VSB) is a top bond ETF in Canada. This VSB ETF review covers its holdings, returns, fees, how to buy it in Canada, and how it compares to ZAG, VAB, and XSB.

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Author

Gravatar for Enoch Omololu, MSc (Econ)
Enoch Omololu, MSc (Econ)

Enoch Omololu is a personal finance expert and a veterinarian. He has a master’s degree in Finance and Investment Management from the University of Aberdeen Business School (Scotland) and has completed several courses and certificates in finance, including the Canadian Securities Course. He also has an MSc. in Agricultural Economics from the University of Manitoba and a Doctor of Veterinary Medicine degree from the University of Ibadan. Enoch is passionate about helping others win with their finances and has been writing about money matters for over a decade. He has been featured or quoted in The Globe and Mail, Winnipeg Free Press, Wealthsimple, CBC News, Financial Post, Toronto Star, CTV News, Canadian Securities Exchange, Credit Canada, National Post, and many other personal finance publications. You can learn more about him on the About Page.

His top investment tools include Wealthsimple and Questrade. He earns cash back on purchases using KOHO, monitors his credit score for free using Borrowell, and earns interest on savings through EQ Bank.

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