Corporate bonds and real estate investment trusts (REITs) are two ways fixed income investors can obtain more yield in order to try to outpace inflation as the Federal Reserve looks towards more rate hikes.
“Although there are a number of differences between REITs and bonds, there are also some similarities,” Yahoo! Finance explained. “Both REITs and bonds are sensitive to interest rate changes by the Federal Reserve.”
For investors specifically looking at corporate bonds, consider the Vanguard Total Corporate Bond ETF ETF Shares (VTC), which also offers a low expense ratio of 0.04%. More companies are looking to issue more corporate bonds in order to take advantage of rates now before they continue rising.
As for VTC, the fund seeks to track the performance of a broad, market-weighted corporate bond index. The fund is a fund of funds, and employs an indexing investment approach designed to track the performance of the Bloomberg U.S. Corporate Bond Index, which measures the investment-grade, fixed-rate, taxable corporate bond market.
The index includes U.S. dollar-denominated securities that are publicly issued by industrial, utility, and financial issuers. The fund comes with a low expense ratio of 0.05%.
VTC offers:
- Performance tied to the Bloomberg U.S. Corporate Bond Index.
- Broad, diversified exposure to the investment-grade U.S. corporate bond market.
- A unique ETF of ETFs structure.
- An intermediate-duration portfolio, with exposure to short-, intermediate-, and long-term maturities.
- Current income with high credit quality.
A REIT Option in Mortgages
REITs can invest in a number of real estate opportunities, including mortgages that can also rise in tandem with Fed rate hikes. As such, they offer an alternate income opportunity to hedge inflation with ETFs such as the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS), which also offers a low expense ratio of 0.04%.
Features of VMBS:
- Seeks to provide a moderate and sustainable level of current income.
- Invests primarily in U.S. agency mortgage-backed pass-through securities issued by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).
- Moderate interest rate risk, with a dollar-weighted average maturity of three to 10 years.
For more news, information, and strategy, visit the Fixed Income Channel.