Investors continue to pile into bond funds, looking to add yield now before the Federal Reserve starts instituting rate cuts. Vanguard has both a passive and active option to get core bond exposure as well as yield.
According to Bank of America, investors poured $19 billion into bond funds, just before the July 4 weekend. It represented “the biggest inflow since February 2021, as they locked in high yields,” per BofA research analysts.
“Cash funds received $51.9 billion of inflows, BofA said, citing numbers from financial data EPFR, the largest inflow in two months,” the linked Reuters article added, citing that “yields available on fixed income assets have soared as central banks have hiked interest rates to tackle inflation, drawing investors to bonds and cash-like money market funds.”
The higher-for-longer interest rate narrative continues to feed into the bond frenzy. Nobody knows how long this will persist, so getting core bond exposure with attractive yield presents a win/win option for fixed income investors in the current macroeconomic environment.
For a passive fund option, fixed income investors won’t have to look far with the Vanguard Total Bond Market Index Fund ETF Shares (BND). It seeks to track the performance of the Bloomberg U.S. Aggregate Float Adjusted Index. That index represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the U.S., 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.
The fund comes with a low expense ratio of 0.03%. Its 30-day SEC yield is 4.76% as of July 3.
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An Active Option at a Low Cost
Active fund options don’t have to be expense, especially with funds like the Vanguard Core Bond ETF (VCRB), which comes with a 0.10% expense ratio. For added flexibility in bond markets, active funds can be beneficial, especially with regard to quelling market uncertainty. In the case of VCRB, holdings come under the control of highly experienced portfolio managers.
VCRB mitigates credit risk via diversified exposure to the U.S. investment-grade bond market. However, the actively managed VCRB also extends its exposure to other fixed income assets for diversification, including mortgage-backed securities and corporate securities for added flexibility.
With the active exposure that VCRB offers, investors can harness the portfolio management capabilities of the Vanguard Fixed Income Group at a low expense ratio. Also as of July 3, its 30-day SEC yield is at 4.79%.
