Investors continue to pile into bonds ahead of Fed rate cuts, taking advantage of current yields before interest rate cuts take place. That said, fixed income investors looking to add core exposure can mull three options from Vanguard.
“The stock market may be roaring, but 2024 has been Wall Street’s year of the bond fund,” the Wall Street Journal said, noting that bonds are offering attractive yields in the current debt market.
The WSJ article noted that a record number of retirees have been de-risking their current portfolios, which makes bonds an ideal passive income option. Furthermore, passive as well as active funds are seeing high investor interest.
For core bond exposure, an ideal option is the Vanguard Total Bond Market Index Fund ETF Shares (BND ). The fund is an all-encompassing bond option that can complement an equity portfolio. For example, the fund can serve as the 40% core bonds in a traditional 60/40 portfolio split.
BND seeks to track the performance of the Bloomberg U.S. Aggregate Float Adjusted Index. The fund incorporates a broad spectrum of debt holdings, giving investors additional diversification within their core bond portfolio. The index represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States. These include government, corporate, and international-dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than one year.
Active Options Worth Considering
Cost shouldn’t be a reason to consider active ETF options for core bond exposure, especially when it comes to the Vanguard Core Bond ETF (VCRB ) and the Vanguard Core-Plus Bond ETF (VPLS ), They carry 0.10% and 20% expense ratios, respectively, demonstrating their cost effectiveness.
The active component of both funds allows portfolio managers to adjust holdings based on current market conditions. This adds a degree of flexibility as opposed to passive funds.
For the most part, VCRB focuses on the U.S. investment-grade bond market. In addition to U.S. Treasuries, the fund extends its exposure to other fixed income assets for diversification, including mortgage-backed securities and corporate securities.
For more yield, while still maintaining investment-grade quality, investors will want to consider VPLS. The ETF adds exposure to riskier credit profiles such as emerging market debt. Nonetheless, its active strategy can help temper said risk.
Both funds allow investors to harness the deep well of talent from the Vanguard Fixed Income Group. Regardless of whether rate cuts happen sooner or later, their market flexibility should provide these active funds with a sustained competitive advantage.
For more news, information, and analysis, visit the Fixed Income Channel.
