The Bloomberg U.S. aggregate bond index has fallen 11% from its peak, marking its largest fall since the bond bull market that began 40 years ago. Given all that, however, now may be the time to add bonds to a portfolio.
While bonds have been mimicking their stock market peers as inflation continues to rack the capital markets, it presents a unique buying opportunity for those who can stomach the volatility. Bonds can certainly still serve a portfolio as a hedge against a drawdown should the economy spiral into a recession amid rising rates.
“While buying bonds today may still have some ‘pain’ in them, we are likely closer to a significant buying opportunity than not,” said Lance Roberts, chief investment strategist of RIA Advisors, as noted in a MarketWatch report. “More important, if we are correct, the coming bull market in bonds will likely outperform stocks and inflation-related trades over the next 12-months.”
Roberts also made light of the fact that bearish bond markets have been met with upside in the past. In fact, it happens fairly soon, so a rally could be due any time now.
3 ETFs for Varied Exposure
The question now is, where to start? Vanguard has various bond exchange traded funds (ETFs) that can suit an investor’s preference for bond exposure.
Investors who simply want aggregate exposure with a diversified portfolio of bonds can choose the Vanguard Total Bond Market Index Fund ETF Shares (BND ), which seeks the performance of Bloomberg U.S. Aggregate Float Adjusted Index. The index represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States, including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than a year.
For more yield, investors can get corporate bond exposure with the Vanguard Total Corporate Bond ETF ETF Shares (VTC). The fund seeks to track the performance of a broad, market-weighted corporate bond index, the Bloomberg U.S. Corporate Bond Index, which measures the investment-grade, fixed-rate, taxable corporate bond market.
For even more yield albeit more risk, prospective bond investors can also look overseas to other debt markets around the globe. To get diversified exposure in one fund, they can opt for the Vanguard Total International Bond Index Fund ETF Shares (BNDX ).
BNDX seeks to track the performance of a benchmark index that measures the investment return of non-U.S. dollar-denominated investment-grade bonds. International bonds can provide a diversification tool for fixed income investors looking to supplement their current core portfolios.
For more news, information, and strategy, visit the Fixed Income Channel.