Fixed Income ETFs Offer Increased Opportunities in 2024

With 2024 just around the bend, fixed income exchange-traded funds (ETFs) are offering investors bright prospects for bond exposure in the new year and capital allocation is expected to increase.

“Fixed-income ETFs have been garnering significant interest from investors, with inflows expected to continue the 2023 trend well into 2024,” noted Christopher J. Day, founder of Days Global Advisors, in CNBC, adding that they can offer investors an effective and efficient way to diversify portfolios. For example, an investor looking to get a 60-40 stock-bond exposure mix can do so with the use of ETFs as opposed to individual bond holdings.

Moreover, fixed income ETFs come with diversified exposure to various corners of the bond markets. This includes international fixed income exposure or more specifically, emerging markets bonds, which was once only accessible by well-capitalized investors.

As Day mentioned, the current macroeconomic environment couldn’t be better for getting fixed income ETF exposure. In 2024, “with expectations that the Federal Reserve may be nearing the end of its rate hiking cycle, it might be a great time to consider fixed-income ETFs, more so for those with an overweight cash position.”

Passive and Active Options for Core Exposure

Vanguard offers a suite of fixed income ETFs that can cater to whatever exposure an investor is seeking. For core bond exposure specifically, there are passive and active options to consider.

For passive exposure that carries a low 0.03% expense ratio, there’s the Vanguard Total Bond Market Index Fund ETF Shares (BND). Per its baseline fund description, BND seeks the performance of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index. To home in on diversification, that index represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the U.S., including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than one year.

The stigma of active management being too expensive doesn’t have to be with the Vanguard Core Bond ETF (VCRB), which also carries a low expense ratio of 0.10%. That active management component gives VCRB the dynamism associated with active funds that allow for pliability in the market.

Furthermore, 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.

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