In the current interest rate environment, fixed-income investors can adjust their strategies to mitigate interest rate risk, especially if the economic activity slows and worse, monetary policy might even warrant a rate drop. In this case, fixed-income investors should consider the Vanguard Short-Term Corporate Bond ETF (NASDAQ: VCSH).
VCSH seeks to track the performance of a market-weighted corporate bond index with a short-term dollar-weighted average maturity–the Bloomberg Barclays U.S. 1-5 Year Corporate Bond Index. The index is comprised of U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities with maturities between 1 and 5 years.
VCHS is a highly rated, cost-effective avenue to lower duration investment-grade corporate bonds. The fund has a five-star Morningstar rating and charges just 0.07% per year, making it cheaper than 91% of rival strategies, according to Vanguard data.
Right For The Times
In an economic environment where rates are steady, VCSH contains debt holdings where interest rates are fixed, mitigating any interest rate risk if the Fed stands put or even lowers interest rates. In addition, the investment-grade component minimizes credit risk with debt issues that are less likely to default. Furthermore, maturities that don’t exceed five years also means investors are protected from any bond market volatility with lesser duration.