Vanguard Variable Annuity - High Yield Bond Portfolio
Risk Attributes

Historic Volatility Measures as of 12/31/2016

BenchmarkR-squared* Beta*
High-Yield Corporate Composite Index0.980.88
Bloomberg Barclays U.S. Aggregate Bond Index0.940.74

*R-squared and beta are calculated from trailing 36-month fund returns relative to the associated benchmark.

Risks Associated with Moderate Funds

Vanguard funds classified as moderate are subject to a moderate degree of fluctuations in share prices. This price volatility may be due to one of several factors: 1) a fund may hold longer-term bonds, which are subject to wide swings in value as interest rates rise and fall; 2) a fund may hold income-oriented common stocks; and 3) a fund may hold a balance of both stocks and bonds. In general, such funds are appropriate for investors who have a relatively long investment horizon (more than five years), are able to tolerate moderate-to-high short-term fluctuations in price, and wish to achieve some combination of current income and modest growth potential.

Plain Talk About Risk

The portfolio’s share price and total return will fluctuate, along with returns for the overall high-yield bond market, within a wide range, so an investor could lose money over short or even long periods. The portfolio is also subject to:

  • Credit risk: The chance that a bond issuer will fail to pay interest or 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. Credit risk should be low for the fund because it purchases only bonds that are of investment-grade quality.
  • Income risk: The chance that the fund’s income will decline because of falling interest rates.
  • Call risk: The chance that during periods of falling interest rates, issuers of callable bonds may call (redeem) securities with higher coupon rates or interest rates before their maturity dates. The fund would then lose any price appreciation above the bond’s call price and would be forced to reinvest the unanticipated proceeds at lower interest rates, resulting in a decline in the fund’s income. Call risk should be moderate for the fund because it invests only a portion of its assets in callable bonds.
  • Interest rate risk: The chance that bond prices will decline because of rising interest rates. Interest rate risk should be moderate for the fund because it invests primarily in short- and intermediate-term bonds, whose prices are less sensitive to interest rate changes than are the prices of long-term bonds.
  • Manager risk: The chance that poor security selection will cause the fund to underperform relevant benchmarks or other funds with a similar investment objective.