Short-duration notes might be an ideal place to park cash in the interim, and long duration can offer higher yields, but one fund seeing strong inflows is a middle-of-the-road option: the Vanguard Intermediate-Term Treasury Index Fund ETF Shares (VGIT ).
The bond fund has been seeing strong flows over the past week as inflation fears are adding volatility to the capital markets, particularly the stock market indexes. As such, fixed income investors are looking for ways to obtain higher yields, and some may not have the risk tolerance to accept the riskiest debt.
This is where a fund like VGIT’s safe haven Treasury notes can help stave off credit risk compared to their riskier counterparts. At the same time, not extending too far out on the yield curve helps mitigate interest rate risk.
Straddling the Line Between Duration and Yield
VGIT straddles the line between obtaining yield and limiting duration. It can be an ideal option for bond investors who want more than what a short-duration bond ETF can offer in terms of yield, but not the rate risk that goes with stepping out further into the yield curve.
As mentioned, VGIT gives investors exposure to safer debt issues with Treasury notes. Per the fund description, VGIT seeks to track the performance of a market-weighted Treasury index with an intermediate-term dollar-weighted average maturity.
The fund employs an indexing investment approach designed to track the performance of the Bloomberg U.S. Treasury 3-10 Year Bond Index. This index includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) with maturities between three and 10 years.
“This ETF offers exposure to intermediate term government bonds, focusing on Treasuries that mature in three to ten years,” an ETF Database analysis explains. “As such, interest rate exposure for this product will be moderate; VGLT offers exposure to longer-dated Treasuries while VGSH is an option for those looking to focus on the short end of the maturity curve.”
Furthermore, cost conscious investors will like the 0.05% expense ratio. That falls well below the category average for similar funds.
“Like most Vanguard ETFs, VGIT is among the cheapest options available; commission free trading in Vanguard accounts may increase the cost appeal to those keeping an eye on fees,” the analysis adds.
For more news, information, and strategy, visit the Fixed Income Channel.