Vanguard is widely known as the investment firm that launched the index fund movement. The Pennsylvania-based fund giant is also the second-largest U.S. issuer of ETFs and widely viewed as one of the fund industry’s low-cost leaders.
Given its expansive lineup of ETFs, index funds and mutual funds, Vanguard has something for every investor and most of those funds come with low fees. That includes Vanguard’s various offerings that qualify as high-yield funds.
Vanguard mutual funds span scores of assets classes — including several corners of the fixed income universe, domestic stocks and foreign equities — presenting investors with multiple options for boosting their portfolios’ income profiles.
Here are some of the best Vanguard mutual funds for income-seeking investors.
Vanguard High-Yield Corporate Fund (VWEHX)
Expense ratio: 0.23% per year, or $23 on a $10,000 investment.
The company currently does not offer a junk-bond ETF, so investors looking for high-yield corporate bond exposure via a Vanguard mutual fund should turn to the Vanguard High-Yield Corporate Fund — Investor Shares (MUTF:VWEHX). This share class of this Vanguard mutual fund requires a minimum investment of $3,000.
Among junk bond funds, VWEHX has a lengthy track record — it debuted 41 years ago. This Vanguard mutual fund holds 466 junk bonds and has an average duration of 4.4 years, which is lower than the durations found on some high-yield corporate ETFs.
VWEHX’s weight to highly speculative CCC-rated debt is 8%. Those are the lowest rated junk bonds. A 12.30% allocation to energy-sector debt indicates this Vanguard mutual fund could have some sensitivity to oil prices, but that energy exposure is slightly below the category average.
Vanguard Long-Term Investment-Grade Fund (VWESX)
Expense ratio: 0.22% per year, or $22 on a $10,000 investment.
The aforementioned VWEHX is the lone Vanguard mutual fund dedicated to junk bonds. But Vanguard offers several avenues for tapping into investment-grade corporate debt. For yield-minded investors with long-term time horizons, the Vanguard Long-Term Investment-Grade Fund — Investor Shares (MUTF:VWESX) is a Vanguard mutual fund to consider.
As seasoned bond investors know, the longer a bond’s term, the more interest rate risk incurred. But that risk is rewarded with higher yields. VWESX yields about 4.50% as compensation for an average duration of 13.30 years among this Vanguard mutual fund’s 834 holdings. Over 85% of VWESX’s holdings have maturities of either 10 to 20 years or 20 to 30 years.
There is another perk with this Vanguard mutual fund: relatively low exposure to BBB-rated corporate bonds. About 87% of VWESX’s holdings carry an A rating of some kind.
Vanguard Equity Income Fund (VEIPX)
Expense ratio: 0.26% per year, or $26 on a $10,000 investment.
Like the other Vanguard mutual funds highlighted here, the Vanguard Equity Income Fund — Investor Shares (MUTF:VEIPX) requires a minimum investment of $3,000.
“Since the fund typically invests in companies that are dedicated to consistently paying dividends, it may have a higher yield than other Vanguard stock mutual funds,” according to Vanguard. “The fund’s emphasis on slower-growing, higher-yielding companies can also mean that its total return may not be as strong in a significant bull market.”
VEIPX is home to 187 domestic large caps with a median market value of $103.3 billion. While this Vanguard mutual fund is a dividend play, its combined weight of 22.10% to the higher-yielding consumer staples, real estate and utilities sectors is not excessive relative to other high dividend strategies. Financial services and healthcare stocks combine for a third of the fund’s weight.
Vanguard Emerging Markets Bond Fund (VEMBX)
Expense ratio: 0.60% per year, or $60 on a $10,000 investment.
The Vanguard Emerging Markets Bond Fund — Investor Shares (MUTF:VEMBX) is a Vanguard mutual fund for adventurous investors and yield hunters alike. After slumping last year, emerging markets bonds are rallying to start 2019 as fixed income market observers expect the Federal Reserve’s pace of interest rate hikes to slow and the dollar to weaken.
The majority of the 93 holdings in this Vanguard mutual fund are dollar-denominated, but the fund has the flexibility to hold some bonds in local currencies. Either way, a weaker dollar could be a positive catalyst for this Vanguard mutual fund in 2019.
The bulk of VEMBX’s holdings carry investment-grade ratings, but many of those bonds are rated at the lower ends of the investment-grade spectrum. There is some duration risk with this Vanguard mutual fund as highlighted by an average duration of 7.1 years. But investors are compensated for that risk with a yield of around 4.50%.
Vanguard High Dividend Yield Index Fund (VHDYX)
Expense ratio: 0.15% per year, or $15 on a $10,000 investment.
The Vanguard High Dividend Yield Index Fund — Investor Shares (MUTF:VHDYX) is a Vanguard mutual fund for investors looking to focus on dividend-paying stocks with penchants for sporting above-average yields.
While VHDYX aims to be a high-dividend play, its exposure to the higher-yielding consumer staples, real estate and utilities sectors is just 21.40% and the fund actually features no real estate exposure. That is below-average exposure to those sectors among high dividend funds. Still, this Vanguard mutual fund yields 3.42%, more than what investors get on the S&P 500 or 10-year Treasuries.
The top 10 holdings in VHDYX combine for 27% of the fund’s weight, and some of those stocks have some of the longest dividend increase streaks in Corporate America. After slumping last year, VHDYX is up 4.53% this year.
Todd Shriber does not own any of the aforementioned securities.
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