Bond markets are set to see an additional boost as the Federal Reserve is expected to raise interest rates by at least 25 basis points next week. Not all fixed income is made equal, and Chip Hughey, managing director of fixed income for advisory firm Truist Wealth, suggests that investors may want to consider high quality fixed income at a longer duration.
Appearing on Yahoo Finance Live to discuss the outlook for fixed income, Hughey said that Truist Wealth recently upgraded its views of longer durations for fixed income funds “because we do see risks of recession rising as we progress through this year.”
“[I]f you go back through history, long duration or longer dated, high quality fixed income does tend to outperform as the economy slows down or enters recession,” Hughey said. “So, from a portfolio context, we saw greater value in duration as the 10-year rose above, call it 4%, 4 and 1/4%. And that’s still what we see.”
The wealth advisor recommended that investors keep “fixed income simple for right now, staying high quality in anticipation of opportunities in riskier fixed income down the road over the course of the next 6 to 12 months.”
For investors looking to gain access to longer duration, high quality fixed income, Vanguard has a suite of ETFs that provide such exposure for a variety of fixed income categories, including the Vanguard Extended Duration Treasury Index Fund ETF Shares (EDV), the Vanguard Long-Term Bond Index Fund ETF Shares (BLV), the Vanguard Long-Term Corporate Bond Index Fund ETF Shares (VCLT), and the Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT).
EDV seeks to track the performance of an index of extended-duration zero-coupon U.S. Treasury securities. The fund employs an indexing investment approach designed to track the performance of the Bloomberg U.S. Treasury STRIPS 20-30 Year Equal Par Bond Index. This index includes zero-coupon U.S. Treasury securities (Treasury STRIPS), which are backed by the full faith and credit of the U.S. government, with maturities ranging from 20 to 30 years. The fund invests by sampling the index.
BLV seeks to track the performance of the Bloomberg U.S. Long Government/Credit Float Adjusted Index, which includes all medium and larger issues of U.S. government, investment-grade corporate, and investment-grade international dollar-denominated bonds that have maturities of greater than 10 years and are publicly issued. As such, BLV can draw from a variety of options when it comes to bond investments.
VCLT seeks to track the performance of a market-weighted corporate bond index with a long-term dollar-weighted average maturity. The fund, which features an expense ratio of 0.04%, employs an indexing investment approach designed to track 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.
VGLT seeks to track the performance of a market-weighted Treasury index with a long-term dollar-weighted average maturity. The fund employs an indexing investment approach designed to track the performance of the Bloomberg U.S. Long Treasury Bond Index, which includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) with maturities greater than 10 years.
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