There are a plethora of options to counter rising rates — one of which includes getting short duration exposure in order to mitigate rate risk. Vanguard has a pair of ETF options to consider.
One option is an all-encompassing bond option that limits credit risk with investment-grade debt relegated to the U.S. bond market. The Vanguard Short-Term Bond Index Fund ETF Shares (BSV) seeks to track the performance of the Bloomberg U.S. 1–5 Year Government/Credit Float Adjusted Index, which includes a diverse array of bond exposures, including all medium and larger issues of U.S. government, investment-grade corporate, and investment-grade international dollar-denominated bonds that have maturities between one and five years and are publicly issued.
Highlights of BSV:
- Seeks to track the performance of the Bloomberg U.S. 1–5 Year Government/Credit Float Adjusted Index, a market-weighted bond index that covers investment-grade bonds with a dollar-weighted average maturity of one to five years.
- Invests in U.S. government, high-quality (investment-grade) corporate and investment-grade international dollar-denominated bonds.
- Follows a passively managed, index sampling approach.
- Has a low expense ratio of 0.05%.
Looking for Targeted Exposure to Treasury Notes?
For fixed income investors wanting targeted exposure to just Treasury notes, there’s the Vanguard Short-Term Treasury ETF (VGSH). This ETF offers exposure to short-term government bonds, focusing on Treasury bonds that mature in one to three years.
It’s an ideal option, given the uncertainty in the current market environment. Bonds can offer investors a safe haven against stock market volatility, while short-term bonds limit the risks of potential rate rises that can rob investors of fixed income opportunities.
“This ETF offers exposure to short term government bonds, focusing on Treasury bonds that mature in one to three years,” an ETF Database analysis suggests. “As such, interest rate exposure for this product will be towards the low end, giving VGSH safe haven appeal as an asset that avoids both credit risk and interest rate risk.”
Overall, VGSH:
- Seeks to provide current income with modest price fluctuation.
- Invests primarily in high-quality (investment-grade) U.S. Treasury bonds.
- Maintains a dollar-weighted average maturity of one to three years.
- Has a low expense ratio of 0.04%.
For more news, information, and strategy, visit the Fixed Income Channel.