Bond investors who are strictly looking at price appreciation are aware that 2022 isn’t the year for that. However, as rates continue to push higher, it’s an opportune time for fixed income investors to pick up more yield.
“This year is well on its way to being the worst in modern history for bond investors,” wrote Tom Lauricella in Morningstar. “But there is a significant silver lining: there is finally some income to be earned in the fixed-income market.”
The U.S. Federal Reserve has been on an aggressive path to try to keep inflation down with more rate hikes. The capital markets are expecting another 75 basis point rate hike at the next Fed meeting, giving fixed income investors more opportunities to pick up yield.
“In that sense investors can thank the Federal Reserve, even though it is the central bank’s aggressive inflation-fighting interest-rate increases that have been the cause of double-digit losses across many bond investments in 2022,” Lauricella added.
As opposed to looking for options in the vast bond market to pick up yield while limiting duration to mitigate rate risk, active management is an option. This strategy allows a portfolio managers to do all the legwork for the investor, and Vanguard has an exchange traded fund (ETF) for just that.
An Ultra-Short Option With Active Management
Fixed income investors looking for diversified options to obtain short duration and high credit quality can opt for the Vanguard Ultra-Short Bond ETF (VUSB). It can be a better option than 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 also has a 30-day SEC yield of 3.42% as of September 15.
Highlights of VUSB:
- A diversified portfolio of high-quality and, to a lesser extent, medium-quality fixed income securities.
- The fund is expected to maintain a dollar-weighted average maturity of zero to two years.
- Under normal circumstances, 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.
For more news, information, and strategy, visit the Fixed Income Channel.