2 Low-Cost ETFs for Dynamic Bond Exposure

While the bond market has stabilized in 2023, the uncertainty of 2024 looms large amid an election year. That said, active exposure can give fixed income investors dynamic adaptability in their bond portfolios at a low cost. Low-cost exposure is certainly a benefit in times of high inflation given the current macroeconomic environment. Active ETFs can be unfairly stigmatized as too expensive, but times have changed.

Passive funds that track an index are now competing with active counterparts in terms of expense ratio. Active exposure essentially removes the autopilot feature from a passive fund. It inserts a capable navigator of markets; in this case, portfolio managers.

Active ETFs allow for dynamic exposure by giving fund managers the ability to adjust holdings when market conditions warrant such changes. In the case of bond ETFs, exposure can be increased when a certain debt holding is experiencing upside or providing more yield and vice versa. This is almost essential whenever volatility strikes any market. And given an uncertain 2024, getting active exposure ahead of the new year is worth considering.

2 Active ETFs from Vanguard

When just looking at expense ratios, a 0.10% and 0.20% ratio may have investors automatically assuming these belong to a pair of passive funds. However, that’s not the case with a pair of active bond funds from Vanguard.

Low-cost, dynamic exposure to the markets couldn’t come at a better time. The timing is even more auspicious if fixed income investors are seeking core bond exposure. That said, the Vanguard Core Bond ETF (VCRB) is worth considering.

If credit risk is a top priority, VCRB addresses this by offering investors diversified exposure predominantly to the U.S. investment-grade bond market. That doesn’t mean sticking strictly within the safe confines of U.S. Treasuries. The ETF extends its exposure to other fixed income assets for diversification, including mortgage-backed securities and corporate securities. Again, with the active exposure that VCRB offers, investors are able to harness the portfolio management capabilities of the Vanguard Fixed Income Group with only a 0.10% expense ratio.

If investors are willing to turn up the risk dial to extract more yield, it doesn’t have to be expensive either, with the 0.20% expense ratio of the Vanguard Core-Plus Bond ETF (VPLS). The fund also offers investment-grade exposure similar to VCRB, but adds selective exposure to riskier credit profiles such as emerging markets debt. That risk, however, is tempered with the fund’s active management.

As mentioned, the timing couldn’t be better for the introduction of both funds. Fixed income investors looking to temper bond volatility ahead of an uncertain 2024 should consider this pair of options for stand-alone bond exposure or to complement a current portfolio.

For more news, information, and analysis, visit the Fixed Income Channel.