Vanguard Mortgage-Backed Securities ETF

Vanguard Mortgage-Backed Securities ETF (VMBS) is an index fund that tracks the Bloomberg U.S. MBS Float Adjusted Index. The index holds fixed-rate home-mortgage bonds issued by Ginnie Mae, Fannie Mae and Freddie Mac. The expense ratio is 0.03%, a little below the 0.04% charged by iShares MBS ETF (MBB) and SPDR Portfolio Mortgage Backed Bond ETF (SPMB). Similar funds average 0.35%. VMBS pays income monthly, with a trailing yield of 4.29% as of October 29, 2026.

• Over the year to Oct 30, 2026, VMBS returned +1.0%, 2nd of 8 among similar funds.
• Its 5-year annualized return was +0.4% and its 10-year +1.2%.
• In the 2020 COVID crash it fell 5.1% and regained its old high 0.3 months after the low.
• Its worst full calendar year was 2022 (-11.9%); its best was 2025 (+8.3%).
• The deepest fall in its price history was 17.5% (Jan 5, 2021 to Oct 20, 2022), recovered by Oct 16, 2025.

As of Aug 31, 2026, the fund held 4,884 securities; the ten largest made up 2.83% of assets, and 4.51% sat in cash and money-market holdings.

The bonds mature in 23.9 years on average (weighted by size), with an average coupon of 4.07%.

• Over the three months to Aug 31, 2026, investors added a net $814.0M (creations minus redemptions, per the N-PORT report).
• Monthly total returns reported for that quarter: +0.22%, -1.21%, +0.45%.

VMBS, the ETF share class of Vanguard Mortgage-Backed Securities Index Fund, aims to track the Bloomberg U.S. MBS Float Adjusted Index. That index covers fixed-rate “pass-through” bonds issued by Ginnie Mae, Fannie Mae and Freddie Mac. A pass-through pools similar home loans into one bond, and homeowners' monthly principal and interest payments flow through to bondholders. To qualify, a group of pools needs at least $1 billion outstanding and a weighted average maturity of at least one year. Bigger groups get bigger weights.

Vanguard does not buy every bond in the index. Instead it uses sampling, holding a mix that matches the index's key risk traits, and keeps at least 80% of net assets in index bonds. Its dollar-weighted average maturity tracks the index's, which was 7.4 years as of August 31, 2025. As of August 31, 2026, the fund held 4,884 securities, and the 10 largest made up just 2.83% of assets.

When rates fall, homeowners tend to refinance and repay early, so the fund gets principal back and must reinvest it at lower yields. When rates rise, repayments slow, so the fund holds lower-rate loans longer and their prices fall. The prospectus reports portfolio turnover of 91%, meaning roughly that share of holdings is replaced in a year. Income is paid monthly.

• VMBS charges 0.03% a year, versus an average of 0.35% for the similar funds below (1st of 8, cheapest first).
• Of that, 0.01% is the management fee; the rest covers other fund expenses.
• Using the prospectus's standard example, $10,000 invested would cost about $3 in the first year and $39 over 10 years (assuming a 5% annual return).

It pays monthly income from government-related mortgage bonds at a very low cost, but its price can fall for long stretches when interest rates rise.

VMBS could add monthly income from mortgage bonds issued by Ginnie Mae, Fannie Mae and Freddie Mac. Its trailing yield was 4.29% as of October 29, 2026, and it costs 0.03% a year, or $3 in the first year on a $10,000 investment under the SEC's standard example. It moved little with stocks. In the 2020 COVID crash it fell 5.1% and recovered within days. It launched in 2009, so it has no record from the 2008 crisis.

The main risk is rising rates. The fund lost 11.56% in 2022, its worst calendar year. Its deepest drop, 17.5% from January 2021 to October 2022, took until October 2025 to recover, almost three years. Anyone who had to sell shares during that stretch would have taken a loss. Past results don't predict the future, and a plan should look at the whole portfolio, not one fund.

Matched by bond funds with the closest average maturity and issuer mix (N-PORT).