Bond investors have seen better days, but that doesn’t mean there are no options available. Personal finance magazine Kiplinger highlighted five bond exchange traded funds (ETFs) to consider in the current environment, including three funds from Vanguard.
With rates rising, going short on duration is a classic play, especially if investors are looking for a temporary place to park cash. One fund to consider is the Vanguard Ultra-Short Bond ETF (VUSB), which is an idea option over going with a money market fund in order to get a more competitive yield offering.
With its low 0.10% expense ratio, VUSB’s investment objective is to seek to provide current income while maintaining limited price volatility. The fund invests in a diversified portfolio of high-quality and, to a lesser extent, medium-quality fixed income securities. It offers a dollar-weighted average maturity of zero to two years.
The fund will invest at least 80% of its assets in fixed income securities. The fund is designed to give investors low-cost exposure to money market instruments and short-term high-quality bonds, including asset-backed, government, and investment-grade corporate securities.
“The average money market yield was a paltry 0.07%, according to Bankrate, while savings accounts at banks are less than that,” the Kiplinger article notes. “Compare that to the 1.7% yield for VUSB and you may find a compelling reason to consider the benefits of holding an ultra-short bond ETF.”
“To get this yield, VUSB invests in a mix of high- and medium-quality fixed-income securities that help it maintain a dollar-weighted average maturity of up to two years,” Kiplinger adds.
A Tax-Exempt Option From Vanguard
For investors looking to minimize their tax burden, one place to look is tax-free municipal bond exposure via an ETF wrapper with funds like the Vanguard Tax-Exempt Bond ETF (VTEB). With a 0.06% expense ratio, the fund offers low-cost exposure to municipal debt.
VTEB tracks the Standard & Poor’s National AMT-Free Municipal Bond Index, which measures the performance of the investment-grade segment of the U.S. municipal bond market. This index includes municipal bonds from issuers that are primarily state or local governments or agencies whose interests are exempt from U.S. federal income taxes and the federal alternative minimum tax (AMT).
“So what investors get with VTEB is a low-cost, moderate-risk bond fund that can produce above-average yields without above-average risk – all while remaining tax efficient,” Kiplinger notes.
For more news, information, and strategy, visit the Fixed Income Channel.