Long-term bond exchange traded funds (ETFs) can offer fixed income investors higher yield options, and a pair of Vanguard funds cracked a Forbes Advisor Top 10 List of long-term bond ETFs.
As the stock market rallies along with the expectation of a deceleration in rate hikes, investors have been shifting their focus from short-term bonds to long-term bonds. The former offered the option to mitigate rate risk, which was warranted amid a hawkish Fed looking to tamp down inflation, but that strategy may be shifting to longer-term options in the bond market.
“By investing in longer-dated fixed-income securities, long-term bond ETFs give investors both steady income and decent capital appreciation over extended periods of time,” Forbes Advisor said, noting that bond ETFs can offer diversification benefits as opposed to individual debt holdings.
“Additionally, they provide greater liquidity compared to individual bonds, as they trade on stock exchanges like regular stocks,” Forbes added.
2 Vanguard Options for the Long Haul
The two funds highlighted by Forbes include an all-encompassing, broad exposure option via the Vanguard Long-Term Bond Index Fund ETF Shares (BLV). BLV seeks to track the performance of the Bloomberg U.S. Long Government/Credit Float Adjusted Index, which includes all medium and larger issues of U.S. government, investment-grade corporate, and investment-grade international dollar-denominated bonds that have maturities of greater than 10 years and are publicly issued.
As of July 28, BLV’s 30-day SEC yield is 4.89%. The fund is deeply diversified with almost 3,000 bonds in its portfolio.
“Long-term bond ETFs are more sensitive to changes in interest rates than other types of bond funds due to their longer durations,” Forbes noted. “When interest rates rise, the prices of existing bonds may decrease, leading to price volatility. Of course falling interest rates should increase prices, benefiting performance.”
For added yield, investors can opt for corporate bonds with the expectation that it will require additional risk tolerance. That said, the second option presented by Forbes was the Vanguard Long-Term Corporate Bond Index Fund ETF Shares (VCLT), which seeks to track the performance of a market-weighted corporate bond index with a long-term dollar-weighted average maturity.
Also as of July 28, VCLT’s 30-day SEC yield comes in at 5.56%. Like BLV, it comes with a sizeable number of bond holdings — almost 2,800.
The fund employs an indexing investment approach designed to track the performance of the Bloomberg 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.
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