There’s plenty of uncertainty to go around in capital markets due to the threat of tariffs. To counter the potential volatility, market experts are recommending bonds to shore up a portfolio.
President Trump is already in the midst of implementing tariffs on China, while negotiating deals with Canada and Mexico. The fundamental benefit of bonds as an uncorrelated asset to equities can help quell any fear that more tariffs could produce major market shocks.
“Uncertainty surrounding global trade has some on Wall Street recommending that investors prepare for market volatility by buying more bonds,” noted the Wall Street Journal, adding that, “UBS told investors Tuesday morning that despite delays on Mexican and Canadian tariffs, uncertainty remains rampant. The analysts recommended high-quality government and investment grade corporate debt, noting bonds offer some shelter from the swings and yields remain attractive.”
“More volatile markets require an increased focus on portfolio diversification and hedging approaches,” UBS analysts wrote.
The recommendation of government and corporate bonds speaks to a pair of Vanguard ETFs to consider. In particular, while short-term bonds can help mitigate risk, yield seekers can look to a median solution with intermediate bonds.
When it comes to safe haven assets to combat volatility, Treasury notes are always a prime option. To stay within the safe confines of U.S. government debt, consider the Vanguard Intermediate-Term Treasury ETF (VGIT ). The fund focuses on Treasury notes that fall within that five- to 10-year maturity-date window.
For more yield, consider corporate bonds and the Vanguard Intermediate-Term Corporate Bond ETF (VCIT ). This fund seeks to track the performance of a market-weighted corporate bond index with an intermediate-term dollar-weighted average maturity. It primarily focuses on high-quality corporate bonds with maturity dates that fall between five to 10 years.
An All-Inclusive, Active Approach
For an all-inclusive approach that speaks to a diverse portfolio of bonds, consider an active approach. This is inherent in the Vanguard Core Bond ETF (VCRB ). Unlike its passive peers, active management allows the fund to tap into the knowledge of experienced portfolio managers from the Vanguard Fixed Income Group. They can adjust holdings based on current market conditions, allowing for flexibility in volatile times as opposed to passive funds.
Cost-conscious investors will like the 0.10% expense ratio. In totality, VCRB invests in U.S. Treasury, mortgage-backed, and corporate securities of varying yields and maturities (short-, intermediate-, and long-term issues) for added diversification. The ETF takes a disciplined, risk-controlled approach when it comes to its bond holdings.
For more news, information, and analysis, visit the Fixed Income Channel.
