A fixed-income exchange-traded fund (ETF) is a common type of investment fund that focuses on a mix of fixed-income securities, like treasury bills and bonds. People who buy these funds often receive fixed payments at regular intervals until the investment matures. ETFs are more secure since payment structures are communicated in advance, typically when the investment is made. Vanguard is a popular company with some of the best fixed-income ETFs one can explore.
1. Vanguard High-Yield Tax-Exempt Fund Investor Shares (VWAHX)
This long-term municipal bond fund offers a high yet sustainable income and is tax-exempt at the federal level. VWAHX has 3,257 bonds in its portfolio, a major portion of which matures between 20 and 30 years and 10 and 20 years. In ideal market conditions, the fund invests a massive share of its total assets in investment-grade municipal bonds that are determined by nationally recognized rating agencies. Vanguard needs an initial minimum investment of $3,000, after which an investor is charged an annual net expense ratio of 0.17%. Vanguard says this is significantly lower than the average ratio of municipal funds with similar holdings.
2. Vanguard High-Yield Corporate Fund Investor Shares (VWEHX)
VWEHX aims to provide people with a high level of income by investing their money in low- to mid-quality corporate bonds (commonly known as junk bonds). The fund has more than 800 high-risk, high-yield bonds representing multiple sectors. Vanguard needs a minimum investment of $3,000 to begin investing in the fund. It also charges a low annual expense ratio of 0.23%, typically lower than other corporate funds. VWEHX’s benchmark is the High-Yield Corporate Composite Index. The fund has returned 3.10% and 3.69% on a five-year and ten-year basis.
3. Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX)
This fund aims to provide people with a moderate but sustainable level of income that is federally tax-exempt. Of the 12,700 bonds in its portfolio, 40% mature within 10 to 20 years. VWITX is expected to invest about 75% of its holding in municipal bonds in the three leading credit rating categories determined by nationally recognized rating organizations. The benchmark for this fund is the Bloomberg 1-15 Year Municipal Index. Its average five-year return was 1.74%, while the index returned 1.71% for the same period. The VWITX fixed-income ETF also returned 2.12% and 2.05%, respectively, in ten years, meaning it has slightly outperformed its benchmark.
4. Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)
One of the best Vanguard ETFs to buy and hold is the VBTLX. Its portfolio is extensively diversified and spans over 11,100 government Treasurys, mortgage-backed securities (MBS), and investment-grade corporate bonds. On average, it has a yield to maturity of 4.6% and a duration of six years, measuring total return potential and interest rate sensitivity. One would need to invest a minimum of $3,000 to access the VBTLX fund.
5. Vanguard Ultra-Short Bond ETF (VUSB)
A prominent ETF from Vanguard, VUSB focuses on shorter maturity fixed-income instruments. This allows it to be insulated from interest rate risk with an average duration of just 0.9 years. Despite that, VUSB delivers an exceptional 5.4% yield to maturity, owing to high current short-term interest rates. The fund’s lucrative yield to maturity is also because of the lower credit quality of its underlying bonds. VUSB holds not only Treasurys but also investment-grade asset-backed bonds and investment-grade corporate bonds. In comparison to Treasurys, these bonds hold a higher credit risk but make up for it with greater income potential.
6. Vanguard Long-Term Treasury ETF (VGLT)
This fund is ideal for those looking for protection against a recession. VGLT has an average duration of 14.9 years and high credit quality. It employs an indexing approach designed to track the Bloomberg U.S. Long Treasury Index’s performance. The index includes fixed-income securities issued by the U.S. Treasury with maturities greater than ten years. In normal circumstances, about 80% of the fund’s assets will be invested in bonds included in the index. The ETF can reap significant returns if the Federal Reserve cuts rates due to a possible economic downturn.
7. Vanguard Core-Plus Bond ETF (VPLS)
This ETF seeks to provide investors with a total return while creating a moderate to high level of current income. It offers diversified exposure primarily to investment-grade U.S. bonds, with selective exposure to below-investment-grade bonds and debt from other countries, including emerging markets. The fund will invest about 80% of its assets in bonds, including fixed-income securities such as corporate bonds, U.S. Treasury obligations, and other U.S. Government and agency securities. VPLS also diversifies assets in bonds across asset-backed, mortgage-backed, and mortgage-related securities. The VPLS ETF is actively managed, and one can buy bonds of any quality.
Although Vanguard has some of the best fixed-income funds, one must research well before investing in them. Assessing all options and analyzing current market trends can help make an informed decision. Further, individuals who are new to ETFs can consult a financial expert to avoid mistakes and make the most of their investments in the long run.