As investors flee from bonds amid rising interest rates, it’s opening up opportunities for investors to get core bond exposure at value-based prices. As such, Vanguard has a pair of options to consider.
With 2020 coming to a close, it’s certainly been a rollercoaster ride on the way down for the bond markets as central banks around the world continue to tighten monetary policy in order to keep inflation in check. As such, bond prices have been facing downward pressure, and it’s showing in fund flows.
“U.S. bond funds have endured the worst stretch of sustained outflows since the 2013 “taper tantrum” panic, with roughly $67.8 billion exiting mutual funds and exchange-traded funds already this year, according to Barclays researchers,” a MarketWatch report said. “A historically bad patch for U.S. fixed income has been met with dramatic bond fund outflows, starting a year ago in November when the Federal Reserve began warning that higher interest rates and a smaller balance sheet would be needed to fight high inflation.”
As investors march out of bond-focused funds, value investors can certainly march back in.
2 Ways to Get Core Bond Exposure
To get bond exposure amid turbulent times in an uncertain market, there are a plethora of options available from Treasury bonds to investment-grade corporate options. However, for a more all-inclusive approach to getting core exposure, consider the Vanguard Total Bond Market Index Fund ETF Shares (BND).
BND seeks the performance of the Bloomberg U.S. Aggregate Float Adjusted Index, which represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States, 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.
Bond investors can use BND as a traditional hedging component when the equities market goes awry, should a recession hit. Short-term traders can also use the ETF given its dynamic ability to be bought and sold quickly in the open market.
For bond investors looking to get more yield or diversify overseas, they can opt for the Vanguard Total International Bond Index Fund ETF Shares (BNDX), which seeks to track the performance of a benchmark index that measures the investment return of non-U.S. dollar-denominated investment-grade bonds. International bonds can provide a diversification tool for fixed income investors looking to supplement their current core portfolio.
The ETF employs an indexing investment approach designed to track the performance of the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged), which provides a broad-based measure of the global, investment-grade, fixed-rate debt markets.
For more news, information, and strategy, visit the Fixed Income Channel.