2 Options for Underinvested Corporate Bond Exposure

With the markets expecting interest rates to fall, the bond market may see more upside, including corporate bonds. Those haven’t gotten much attention in various parts of the globe, according to research by Fisch Asset Management. In a report titled “Global Corporate Bonds: Effective Diversification Across Regions and Ratings Report,” findings showed that the global bond marketplace lacked investment products that offer global corporate bond exposure.

As Funds Europe noted, this is somewhat perplexing, given that corporate bonds have been “consistently outperforming sovereign bonds since 2002 with increased volatility.”

As central banks around the world loosen monetary policy, interest in corporate bond exposure could rise. For a higher risk profile, fixed income investors can obtain more yield as rates start to slowly head south.

For an all-encompassing option in domestic U.S. corporate bonds, consider the Vanguard Total Corporate Bond ETF ETF Shares (VTC). The fund seeks to track the performance of a broad, market-weighted corporate bond index.

Additionally, VTC is a fund of funds and employs an indexing investment approach designed to follow the performance of the Bloomberg U.S. Corporate Bond Index, which measures the investment-grade, fixed-rate, taxable corporate bond market. The index includes U.S. dollar-denominated securities publicly issued by industrial, utility, and financial issuers. The fund comes with a low expense ratio of 0.05%.

Summarily, VTC offers:

  1. Performance tied to the Bloomberg U.S. Corporate Bond Index
  2. Broad, diversified exposure to the investment-grade U.S. corporate bond market
  3. A unique ETF of ETFs structure
  4. An intermediate-duration portfolio with exposure to short-, intermediate-, and long-term maturities
  5. Current income with high credit quality

A Short-Duration Option

For a short-duration option to minimize any rate risk, fixed income investors can opt for 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 follow the performance of the Bloomberg 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.

For more news, information, and strategy, visit the Fixed Income Channel.