With tariff news providing constant equity market fluctuations, the case for bonds becomes more compelling. The added uncertainty also punctuates the need for an active management strategy, which one particular Vanguard ETF offers.
In any case, it certainly is an interesting time for bonds. Per one expert, it’s an environment for bonds that hasn’t been seen in almost 20 years.
“This might be one of the most compelling times since 2007 to invest in bonds,” noted Pawan Jain, a certified financial planner and associate professor of finance, insurance, and real estate at Virginia Commonwealth University. “After years of rising interest rates, yields are finally attractive across many bond types, and with the Federal Reserve expected to pause or begin cutting rates, investors could benefit from both steady income and potential price gains.”
As mentioned, with yields elevated, it’s an ideal opportunity for fixed income investors to take advantage now before the Fed eases monetary policy. If trade deal negotiations look awry, rising bond prices won’t induce a fear of missing out effect for income seekers.
“Even if bond prices bounce around in the coming weeks, yields are still looking pretty solid compared to the last 20 years,” said David Johnston, managing partner of Amwell Ridge Wealth Management. “Plus, starting yields are now so much higher than even just a few years ago, and starting yields are usually the best indicator of future performance.”
Given all this, investors who want to get core bond exposure might look into the sea of bond offerings and easily get lost. Treasuries, corporate bonds, international bonds, and others can easily lead investors or advisors down the wrong path when constructing a portfolio.
Active Core Bond Exposure
Bond funds present an ideal option to get a smorgasbord of holdings for diversification. But then the investor must choose between passive or active. Investors might quickly dismiss the latter as being too expensive, but with a 0.10% expense ratio, that idea might change. This is where the Vanguard Core Bond ETF (VCRB ) becomes an interesting option.
Under the portfolio management capabilities of the Vanguard Fixed Income Group, VCRB provides investors with core exposure with added flexibility. Portfolio managers can customize the holdings as necessary when market conditions warrant a change. This is the added flexibility that active management offers. With a low expense ratio, VCRB’s case becomes even more compelling even when juxtaposed with passive funds.
To mitigate credit risk in today’s uncertain economic landscape, VCRB offers diversified exposure to the U.S. investment-grade bond market. However, the fund broadens its investment scope to other fixed income assets for diversification, including mortgage-backed securities and corporate securities. This is where VCRB can also reach for yield to maximize income.
For more news, information, and analysis, visit the Fixed Income Channel.
