Manager insight
June 03, 2025
Vanguard’s Investment-Grade Credit Team plays a critical role in the company’s active fixed income funds, managing north of $110 billion in assets.1 In this conversation, Arvind Narayanan, a senior portfolio manager and head of that team, shares insights into the team and its investment philosophy, the importance of credit analysis, and current opportunities for fund investors.
For starters, we have a bigger footprint in the investment-grade credit market than you might think. Investment-grade credit is an integral part of most of our actively managed fixed income funds, accounting for anywhere from 20% to 90% of their holdings.
I’m fortunate to manage a team that is incredibly long-tenured in the market and has deep sector expertise. On average, our portfolio managers have about 20 years or more of experience, and many of our traders have 10 years of experience or more in the market. This level of expertise gives us the breadth of understanding across sectors and the depth of experience across market cycles to pilot our funds through the good times and bad.
Process is one of our team’s strengths as well. We collaborate extensively to generate alpha by applying a diversified set of reliable strategies that are both repeatable and scalable.
We’re all about our mission to deliver the best risk-adjusted returns for our investors through smart risk-taking. That doesn’t simply mean taking risk when the market looks cheap and, conversely, sitting on the sidelines when the market looks expensive. Smart risk-taking is all about constructing a portfolio that will capture upside in bull markets but at the same time has some built-in buffers to help weather inevitable periods of market volatility.
This past April offers a good illustration of our team’s approach. Early in the month, asset valuations were at or near multiyear highs across the board. But we know that valuations can stay rich for a long time, and there were no obvious risks on the horizon that looked set to derail the market, so we remained in the market to keep generating excess returns. Then, when markets reacted to the tariff announcements later in April, we had buffers in place that helped our portfolios weather the ensuing volatility.
Generating alpha in the investment-grade market is a blend of top-down macroeconomic views and bottom-up issuer selection. We collaborate closely with Vanguard’s Investment Strategy Group to understand big-picture drivers such as growth, inflation, monetary policy, and fiscal policies.
This macroeconomic perspective is complemented by in-depth analysis from our credit analysts, who meticulously evaluate individual sectors and the financial strength and business strategies of the companies within them. This is critical work, because the success of our fund investors ultimately depends on the success of the businesses we invest in.
The media sector, for example, is going through a structural change right now as consumers move away from traditional media and TV. Our credit analysts are examining how this affects media companies we follow and how the whole sector might evolve over the next five years. Utilities is another sector our analysts are watching closely as it grapples with a surge in demand for electricity from data centers and artificial intelligence.
I think there’s a good opportunity right now to lock in the very attractive yields available from high-quality investment-grade corporates. Yields in this part of the fixed income market haven’t been this high in 15 years.
And should the economy slow down more than expected, or should we slip into a recession, interest rates being as high as they are can still allow high-quality investment-grade corporates to produce positive total returns, even as other parts of the financial markets, such as equities, might struggle. A deteriorating macroeconomic environment also wouldn’t be likely to impede the ability of these blue-chip companies to service their debt, given the current health of their balance sheets and the many levers these companies have at their disposal to navigate challenging times.
1 Figure as of May 14, 2025.
For more information about Vanguard funds, visit vanguard.com to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.
All investing is subject to risk, including possible loss of principal. Diversification does not ensure a profit or protect against a loss.
Bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer’s ability to make such payments will cause the price of that bond to decline.