Morningstar highlighted a list short-term bond funds that include a pair of Vanguard ETFs specifically for fixed income investors looking to park cash in the interim. With rate cuts expected to occur at some point, taking advantage of the high yields now is a prime reason to consider bond funds.
Morningstar’s Christine Benz, director of personal finance and retirement planning, noted that the ideal investor for a short-term bond fund will be dependent on the time horizon and when that particular investor needs to access the funds as opposed to bond market activity. If the investor plans to tap into the funds within three to five years, then short-term bond funds would be ideal.
Additionally, those considering short-term bond funds should put costs at the forefront of their decision-making as fees will certainly offset yields in the short-term time horizon. That said, Vanguard has a pair of low-cost options to consider.
Fixed income investors looking to maximize yield may want to consider the Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH ). It seeks to track the the performance of the Bloomberg U.S. 1-5 Year Corporate Bond Index. The index includes U.S.-dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities between one and five years. As of June 27, the fund has a 30-day SEC yield of 5.26% paired with a low expense ratio of 0.04%.
As Morningstar analyst Lan Anh Tran noted, “the fund provides accurate access to the short-term investment-grade bond market at a low cost and has been a competitive long-term performer.”
A Short-Term Treasuries Option
For more risk-averse fixed income investors who don’t want to assume the additional credit risk of corporate bonds, they can consider the Vanguard Short-Term Treasury ETF (VGSH ). The fund tracks the Bloomberg US Treasury (1-3 Y) index, maintaining exposure to high-quality (investment-grade) U.S. Treasury bonds. Despite the focus on safe haven Treasury debt, fixed income investors aren’t sacrificing much yield. The fund’s 30-day SEC yield also as of June 27 is 4.85% with the same low expense ratio of 0.04%.
“Given its very high-quality focus, the fund takes on minimal credit risk,” noted Morningstar analyst Zachary Evens. "Interest-rate risk holds more influence over performance, but given the fund’s emphasis on the short end of the yield curve, even that risk is muted.
For more news, information, and analysis, visit the Fixed Income Channel.
