Fixed income investors looking for the dual benefit of price appreciation and high yields need not look any further than corporate bonds ETFs. Three offerings from Vanguard can suit investors as stand-alone exposure or for bond laddering purposes.
As mentioned in a Reuters report, Bank of America noted that investors globally “poured $3.6 billion into investment grade corporate bond funds” last week, which marked “the 31st straight week of inflows, the longest streak since 2019.”
Elevated yields are alluring to investors. That’s because they can lock in rates now before eventual monetary policy loosening by the Federal Reserve. Yields move inversely to bond prices. So investors can extract price appreciation when that scenario plays out.
“A rise in global interest rates has forced up corporate bond yields, drawing in buyers attracted by the payouts as well as the hope that prices will rally once interest rates start to fall,” the report added. It noted that it follows the broader trend of investors adding capital to bonds in general (23 straight weeks of inflows).
To get broad exposure to corporate bonds, consider using the Vanguard Total Corporate Bond ETF Shares (VTC ). It seeks to track the performance of the Bloomberg U.S. Corporate Bond Index. That index measures the investment-grade, fixed-rate, taxable corporate bond market. It includes U.S.-dollar-denominated securities publicly issued by industrial, utility, and financial issuers.
3 Funds for Laddering
Investors may want to implement a bond laddering strategy using funds with varying maturity dates. Vanguard offers long-, intermediate-, and short-term funds as well. Or, as mentioned, these products can serve as stand-alone ETFs for tailor-made exposure:
- Vanguard Long-Term Corporate Bond Index Fund ETF Shares (VCLT ): The fund tracks the performance of the Bloomberg U.S. 10+ Year Corporate Bond Index. This index includes U.S.-dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies with maturities greater than 10 years.
- Vanguard Interim-Term Corporate Bond ETF (VCIT ): This ETF tracks the Bloomberg U.S. 5-10 Year Corporate Bond Index. That index includes U.S.-dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies. It has maturities of between five and 10 years.
- Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH ): The fund seeks to track the performance of a market-weighted corporate bond index with a short-term dollar-weighted average maturity. It employs an indexing investment approach designed to track the performance of the Bloomberg Barclays U.S. 1-5 Year Corporate Bond Index.
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