Bond markets are bracing for rising rates as central banks are looking to tighten their monetary policies amid improving economies after the pandemic. That said, it’s necessary to diversify in other parts of the world.
That said, one ETF to consider is the Vanguard Total World Bond ETF (BNDW). BNDW, with its low 0.06% expense ratio, seeks to track the performance of the Bloomberg Global Aggregate Float Adjusted Composite Index, which measures the investment return of investment-grade U.S. bonds and investment-grade non-U.S. dollar-denominated bonds.
BNDW can be ideal for investors who want exposure to international debt markets but do not want to disregard the United States bond market completely. In essence, the ETF provides more of a global aggregate bond fund.
Looking Outside the U.S.
Another option is the Vanguard Total International Bond Index Fund ETF Shares (BNDX). BNDX, also with a low expense ratio of 0.08%, seeks to track the performance of a benchmark index that measures the investment return of non-U.S. dollar-denominated investment-grade bonds.
As mentioned, 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 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.
Those who want more yield and don’t mind the extra credit risk can look to emerging markets (EM). One fund to consider is the Vanguard Emerging Markets Government Bond Index Fund ETF Shares (VWOB).
VWOB seeks to track the performance of a benchmark index that measures the investment return of U.S. dollar-denominated bonds issued by governments and government-related issuers in emerging market countries. The fund employs an indexing investment approach designed to track the performance of the Bloomberg Barclays USD Emerging Markets Government RIC Capped Index.
VWOB comes at a higher expense ratio at 0.25% compared to BNDW and BNDX. However, the 30-day SEC yield, as of February 16, comes in at 4.72%.
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