Corporate bond exposure can help diversify a fixed income portfolio, especially if it’s laden with safe-haven government debt. Vanguard offers three ETFs to choose from.
Corporate bonds have the ability to offer more attractive yields, as compared to government debt like Treasury notes. While this may come with a higher degree of risk, Vanguard can give investors corporate bond exposure to investment-grade debt to help ease the angst.
“Corporate bonds are evaluated and assigned a rating based on credit history and ability to repay obligations,” an Investing in Bonds article explained. “The higher the rating, the safer the investment as measured by the likelihood of repayment of principal and interest.”
Three Options to Consider
For short duration exposure to limit interest rate risk, there’s the Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH), which seeks to track the performance of a market-weighted corporate bond index with a short-term dollar-weighted average maturity. The fund employs an indexing investment approach designed to track the performance of the Bloomberg Barclays U.S. 1-5 Year Corporate Bond Index.
This index includes U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities between one and five years. Under normal circumstances, at least 80% of the fund’s assets will be invested in bonds included in the index.
Next up is the Vanguard Interim-Term Corporate Bond ETF (VCIT). VCIT seeks to track the performance of a market-weighted corporate bond index with an intermediate-term dollar-weighted average maturity.
The fund employs an indexing investment approach designed to track the performance of the Bloomberg Barclays U.S. 5-10 Year Corporate Bond Index. This index includes U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities between 5 and 10 years.
For the long haul, there’s the Vanguard Long-Term Corporate Bond Index Fund ETF Shares (VCLT). The fund seeks to track the performance of a market-weighted corporate bond index with a long-term dollar-weighted average maturity.
The fund employs an indexing investment approach designed to track the performance of the Bloomberg Barclays U.S. 10+ Year Corporate Bond Index. This index includes U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities greater than 10 years. Under normal circumstances, at least 80% of the fund’s assets will be invested in bonds included in the index.
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