2 Corporate Bond ETFs to Extract More Yield, Mitigate Credit Risk

Corporate bonds give fixed-income investors an option to pick up more yield, which is necessary given the current market environs where rising inflation and the prospect of rising interest rates are making investors jittery.

Investors willing to meet in the middle of short and long duration to get more yield without the added rate risk can opt for the Vanguard Interim-Term Corporate Bond ETF (VCIT). As of February 17, the 30-day SEC yield on the fund is 2.85%.

VCIT seeks to track the performance of a market-weighted corporate bond index with an intermediate-term dollar-weighted average maturity. The fund employs an indexing investment approach designed to track the performance of the Bloomberg Barclays U.S. 5–10 Year Corporate Bond Index, which includes U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities between five and ten years.

Get ESG Corporate Bond Exposure

There’s no denying the strength environmental, social, and governance (ESG) investing has shown in recent years. Fixed-income investors can pair that strength with corporate bonds.

As the trend towards more green bonds by corporate America continues to push higher, bond investors can get in on the action with the Vanguard ESG U.S. Corporate Bond ETF (VCEB). Fixed-income investors can combine the benefits of higher yields and ESG principles with VCEB.

Per its fund description, VCEB seeks to track the performance of the Bloomberg MSCI US Corporate SRI Select Index. The index excludes bonds with maturities of one year or less and with less than $750 million outstanding and is screened for certain ESG criteria by the index provider, which is independent of Vanguard.

VCEB highlights:

  • Provides debt issues screened for certain ESG criteria.
  • Specifically excludes bonds of companies that the index sponsor determines are involved in and/or derive threshold amounts of revenue from certain activities or business segments related to adult entertainment, alcohol, gambling, tobacco, nuclear weapons, controversial weapons, conventional weapons, civilian firearms, nuclear power, genetically modified organisms, or thermal coal, oil, or gas.
  • Excludes bonds of companies that, as determined by the index sponsor, do not meet certain standards defined by the index sponsor’s ESG controversies assessment framework, as well as firms that fail to have at least one woman on their boards.

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