In this feature of Vanguard mutual funds, we’ll turn the spotlight onto a selection of eight Vanguard investment-grade bond funds that cover a broad range of fixed income needs.
Investment-grade bond funds offer investors a balance of risk and yield that can combine for a sweet spot of bond fund investing. Investing in highly rated bonds, such as U.S. Treasury bonds or corporate bonds with high credit ratings, can be good conservative choices but they kick off lower yields. And the high-yield bonds can be attractive for income purposes but the market risk may be too much for conservative investors.
In summary, investment-grade bonds cover the middle ground of risk and return, where investors can get decent yields without taking on excessive market risk.
Today, we’ll take a quick look at eight Vanguard bond funds that hold investment-grade bonds and that cover a full range of duration and yield.
Vanguard Investment-Grade Bond Funds
Vanguard Core Bond Fund (VCORX): Vanguard’s VCORX is an actively-managed bond fund that offers a low-cost means of accessing a broad range of bonds, including U.S. Treasury, mortgage-backed, and corporate bonds of various yields and maturities. Currently, the average duration is 6 years and the yield is 2.6%. The expense ratio is 0.25%, or $25 for every $10,000 invested.
Vanguard Intermediate-Term Corporate Bond Index (VICSX): This bond fund from Vanguard focuses on corporate, investment-grade bonds with maturities ranging between 5 and 10 years, hence the intermediate-term moniker. With an average duration of 6.4 years and no U.S. government bonds in the mix, the market risk is a bit higher than the core bond fund and thus a higher yield, which was recently 3.4%. The expense ratio is rock bottom at 0.07%. However, VICSX is an Admiral Shares fund, which means the minimum initial investment is $10,000.
Vanguard Intermediate-Term Investment-Grade (VFICX): Vanguard’s VFICX invests in a diverse mix of mid- to high-quality bonds with a range of maturities that average out to be 6.1 years in duration. The blend of credit quality averages at investment-grade. VFICX has a current yield of 2.7%. The expense ratio is low at 0.20%, or $20 for every $10,000 invested.
Vanguard Long-Term Corporate Bond Index (VLTCX): Investors willing to take on more interest rate risk for the potential for higher returns in the the long run may want to consider VLTCX, which holds investment-grade corporate bonds with maturities of 10 years or more. Yields for long-term bonds average higher than short- and intermediate-term bonds but rising interest rates can push bond prices lower for bonds with longer maturities. The yield is currently a healthy 4.6% and the expense ratio is cheap at 0.07%, or $7 for every $10,000 invested. However VLTCX is an Admiral Shares fund, which means the minimum initial purchase is $10,000.
Vanguard Long-Term Investment-Grade (VWESX): Vanguard’s VWESX invests in investment-grade bonds with maturities of 15 to 25 years. Most of the holdings are corporate issues but a small portion of the portfolio includes municipal bonds. As with other long-term bond funds, investors will need to balance their need for higher yields with greater interest rate risk, which can push prices lower when interest rates are rising. The yield for VWESX was recently 3.9% and the expense ratio is 0.21%, or $21 for every $10,000 invested.
Vanguard Short-Term Corporate Bond Index (VSCSX): Investors looking to keep interest rate risk to a minimum but earn higher yields than more conservative bond funds my want to consider VSCSX, which invests in investment-grade bonds with maturities that range from 1 to 5 years. The average duration is 2.8 years and the yield is currently 2.2%. This being an Admiral Shares fund, VSCSX has a minimum initial purchase of $10,000. The expense ratio is 0.07%, or $7 for every $10,000 invested.
Vanguard Short-Term Investment-Grade (VFSTX): Investors that want a short-term investment-grade bond fund that holds a diverse blend of medium- to high-quality bonds, including U.S. government bonds, will want to take a look at Vanguard’s VFSTX. With a bit more credit quality holdings than similar investment-grade bond funds, VFSTX can be a good choice for conservative investors that shy away from high-yield bonds. The yield for VFSTX is currently 1.9% and the expense ratio is 0.20%, or $20 for every $10,000 invested.
Vanguard Ultra-Short-Term Bond (VUBFX): Vanguard’s VUBFX can be a smart choice for investors looking for higher yields than most money market funds but lower interest rate risk than most bond funds. VUBFX holds a mix of money market securities, high-quality government bonds, and investment-grade corporate bonds. The yield is a respectable 1.3% for an average duration of 0.9 years. The expense ratio is just 0.20%, or $20 for every $10,000 invested.
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities. His No. 1 holding is his privately held investment advisory firm in Hilton Head Island, SC. Under no circumstances does this information represent a recommendation to buy or sell securities.