Morningstar provided a list of bond funds that earned a gold rating in various bond groups: core, short-term, and specialized. A pair of Vanguard bond funds were tapped as ideal options for getting core exposure.
“Investors with goals in the three- to 10-year range—say, buying a new home, retiring within the next decade, or sending your youngest who just started high school to college—likely do,” said Morningstar’s director of content Susan Dziubinski. “Bonds are also favored by investors who may not be comfortable with being 100% in stocks, no matter their time horizons.”
Getting core bond exposure doesn’t mean investors need to add a multitude of single positions in various bonds. Whatever the reason for the exposure, there are easier ways to achieve it.
Getting to the Core With 2 Bond ETFs
Core bond exposure could be desired for a variety of reasons. Whether it’s to shore up a portfolio or for more tactical strategies, exchange traded funds (ETFs) can provide that level of exposure with the dynamic benefits of a versatile investment vehicle. One fund to consider for core exposure is 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.
Municipal bonds have been the preferred bond option for high net worth individuals given their tax advantages. As such, one way to get low-cost exposure to municipal debt is the Vanguard Tax-Exempt Bond ETF (VTEB).
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).
“It’s a good option for those who are investing in taxable accounts and are in high tax brackets,” said Morningstar’s director of content Susan Dziubinski.
For more news, information, and strategy, visit the Fixed Income Channel.