While the U.S. bond market continues to show signs of struggle this year, investors should still hold fixed income ETFs. For one thing, prices are down while yields are up. Plus, bonds are still far less risky than stocks over the long term.
“Bond prices have continued to fall in 2023 as the Federal Reserve has hiked interest rates even higher this year, and long-term rates have risen to levels not seen since 2007,” said Morningstar’s Dave Sekera. “Looking ahead, we now see a better outlook for bonds at these higher yields.”
See more: “Recession Risk Still in Play for Bond Bulls”
Sekera added that Morningstar is forecasting that the Fed is done raising the federal funds rate. In fact, Morningstar anticipates that the Fed will begin cutting interest rates early next year.
Invest in Corporate Bonds Through Vanguard
Morningstar’s Amy Arnott recently suggested that investors stick with short- and intermediate-term bond funds. So, for investors looking to include such funds as core holdings in their portfolios, Vanguard has an array of fixed income ETFs to consider. This includes corporate bond funds.
The Vanguard Short-Term Corporate Bond ETF (VCSH) invests in investment-grade corporate bonds by following the Bloomberg U.S. 1-5 Year Corporate Bond Index. It maintains a dollar-weighted average maturity of one to five years. VCSH had a 30-day SEC yield of 5.84% as of October 16.
Meanwhile, the Vanguard Intermediate-Term Corporate Bond ETF (VCIT) targets high-quality bonds with a dollar-weighted average maturity of five to 10 years. Its 30-day SEC yield was 6.03% as of October 16.
Both ETFs have an expense ratio of just 4 basis points.
VettaFi’s vice chairman Tom Lydon called Vanguard “the Hoover of the ETF industry” for how it’s vacuumed up investor dollars.
“They are just rock solid,” he said. “They have so many choices. They’re low-cost and always very, very dependable.”
For more news, information, and analysis, visit the Fixed Income Channel.