For young investors, the exchange traded fund (ETF) offers a dynamic investment vehicle that flows over into the bond markets. For the young, savvy investor looking to trade in the debt market, bond ETFs are quickly becoming a weapon of choice to attack the markets — whether for short-term trading opportunities or portfolio diversification.
“Younger investors are more comfortable with the ETF structure than they are mutual funds. You’re getting some of the benefits of liquidity and tax efficiency through ETFs,” said Todd Rosenbluth, head of research at VettaFi.
Prospective bond investors looking to get broad bond exposure can start with the Vanguard Total Bond Market Index Fund ETF Shares (BND), which seeks the performance of the Bloomberg U.S. Aggregate Float Adjusted Index. The index represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States, including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than one year.
Bond investors can use BND as a traditional hedging component when the equities market goes awry, such as it did during Monday’s trading session. Short-term traders can also use the ETF given its dynamic ability to be bought and sold quickly in the open market if changing conditions warrant a buy or sell.
Getting Bond Exposure With an ESG Slant
More young investors are also opting for ESG, and more of its principles are entering the bond markets, particularly in the U.S. As such, a way to get this added benefit with the yield potential of corporate bonds is to opt for the Vanguard ESG U.S. Corporate Bond ETF (VCEB).
VCEB seeks to track the performance of the Bloomberg MSCI US Corporate SRI Select Index, which excludes bonds with maturities of one year or less and with less than $750 million outstanding and is screened for certain ESG criteria by the index provider, which is independent of Vanguard.
- Provides debt issues screened for certain ESG criteria.
- Specifically excludes bonds of companies that the index sponsor determines are involved in and/or derive threshold amounts of revenue from certain activities or business segments related to adult entertainment, alcohol, gambling, tobacco, nuclear weapons, controversial weapons, conventional weapons, civilian firearms, nuclear power, genetically modified organisms, or thermal coal, oil, or gas.
- Excludes bonds of companies that, as determined by the index sponsor, do not meet certain standards defined by the index sponsor’s ESG controversies assessment framework, as well as firms that fail to have at least one woman on their boards.
- Has a low expense ratio of 0.12% and a 30-day SEC yield of 4.06%, as of June 9.
For more news, information, and strategy, visit the Fixed Income Channel.