Cream-of-the-Crop Bond Funds: Vanguard Short-Term Bond Index Fund (BSV)
SEC Yield: 1.69%
If your goal is low cost and index-like returns, you can’t go wrong with a fund like Vanguard Short-Term Bond Index Fund (NYSEARCA:BSV).
This Vanguard ETF takes the approach of significantly shortening the duration of its holdings versus a traditional intermediate-term benchmark; BSV has an effective duration of 2.8 years versus 5.9 years in BND. (Remember: Effective duration is essentially the measure of a fund’s sensitivity to interest rate fluctuations.)
BSV charges an ultra-low expense ratio, has exposure to 2,400 underlying holdings and boasts nearly $20 billion in assets under management. The portfolio is allocated using similar sector exposure to the Barclays Aggregate index, with the majority of holdings rated as high credit quality.
The downside to BSV is going to be its meager income stream. The fund currently sports a 30-day SEC yield of just 1.69% and income is paid monthly to shareholders. Such is the trade-off of lowering price volatility at the expense of the dividend payments.