Bonds have once again become a default play to help hedge against stock market volatility. As renewed recession fears are adding market fluctuations to a typically tepid summer for stocks, bonds are an ideal safe haven, with three options from Vanguard to consider.
Prospective investors wanting to get started with core bond exposure may instantly start looking at passive fund options. However, they shouldn’t immediately dismiss active options with a preconceived notion that they might be too expensive. A pair of cost-effective options from Vanguard exist in the Vanguard Core Bond ETF (VCRB) and the Vanguard Core-Plus Bond ETF (VPLS), They carry 0.10% and 20% expense ratios, respectively.
The active component of both funds allows portfolio managers to adjust holdings based on current market conditions. With an impending presidential election, more volatility could be on the horizon, and active management adds a degree of flexibility as opposed to passive funds.
To mitigate credit risk, VCRB focuses on the U.S. investment-grade bond market. In addition to U.S. Treasuries, the fund extends its exposure to other fixed income assets for diversification, which includes mortgage-backed and corporate securities.
Yield has been one of the prime motivators for bond exposure. And fixed income investors looking to maintain yield will want to consider VPLS. The fund adds exposure to riskier credit profiles such as emerging market debt. But like VCRB, its active strategy can help temper risk.
Additionally, both funds allow investors to harness the deep well of talent from the Vanguard Fixed Income Group. Irrespective of whether rate cuts happen sooner or later, their market flexibility should provide these active funds with a sustained competitive advantage.
Back to Basics With BND
Investors looking for a core bond fund that offers back-to-basics exposure to bonds in a traditional 60/40 stock/bond portfolio split should consider the Vanguard Total Bond Market Index Fund ETF Shares (BND). The fund is an all-encompassing, diversified bond option that can easily complement an equity portfolio as opposed to holding various individual bonds.
BND seeks to track the performance of the Bloomberg U.S. Aggregate Float Adjusted Index. The fund incorporates a broad spectrum of debt holdings, giving investors additional diversification within their core bond portfolio. The index represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States. These include government, corporate, and international-dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than one year.
For more news, information, and analysis, visit the Fixed Income Channel.