Short-term bond funds can provide yield seekers with a viable alternative to money market funds. Bankrate listed short-term bond funds with one of Vanguard’s fixed income ETFs making the list.
During the Federal Reserve’s aggressive monetary policy tightening, short-term bond funds have been the go-to option to mitigate rate risk. The Fed is starting to ease policy and rates are subsequently on the move lower. But short-term bond funds can provide a competitive yield option for those looking to park cash somewhere in the interim and allow it to marinate with interest.
“Short-term bonds can be a nice way for investors to earn a return above what they’d get in a traditional savings account without exposing themselves to too much interest-rate risk,” said James Royal, Ph.D., Bankrate investing and wealth management principal writer.
Making Bankrate’s list of recommended short-term bond funds is the Vanguard Short-Term Bond Index Fund ETF Shares (BSV ). The broad-based fund seeks to track the performance of the Bloomberg U.S. 1-5 Year Government/Credit Float Adjusted Index.
The aforementioned index includes a diverse array of bonds for added diversification. They include all medium and larger issues of U.S. government, investment-grade corporate, and investment-grade international dollar-denominated bonds that have maturities between one and five years and are publicly issued. Furthermore, BSV offers a low expense ratio of just 0.04%.
2 More Options for Tailored Exposure
While BSV presents a compelling option for broad, diversified short-term debt, fixed income investors can also tailor their exposure to Treasuries or corporate bonds. That said, here are two more options to consider:
- Vanguard Short-Term Treasury ETF (VGSH ): The fund offers ideal exposure to short-term Treasury notes, focusing on maturity dates that fall within one to three years. It has a 30-day SEC yield of 4.29%. Like BSV, the fund also features a low 0.04% expense ratio.
- Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH ): The fund 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. It has a 30-day SEC yield of 4.74% paired with the same low expense ratio of 0.04%.
These bond ETFs offer simplified exposure to the short-term corner of the debt market as opposed to building a portfolio from individually selected bond issues. Bond exposure is also flexible in the dynamic wrapper of an ETF.
For more news, information, and analysis, visit the Fixed Income Channel.
