Lots of Corporate Bonds in One ETF
This article was originally published on ETFTrends.com.
Investors looking for cost-effective exposure to a broad swath of investment-grade corporate bonds with varying durations may want to consider the Vanguard Total Corporate Bond ETF (VTC) .
The Total Corporate Bond ETF acts like a fund-of-funds and will try to reflect the performance of the Bloomberg Barclays U.S. Corporate Bond Index, which includes investment-grade, fixed-rate, taxable corporate bonds issued by industrial, utility and financial issuers.
The fund-of-funds holds three other Vanguard ETFs that track three different maturity ranges, including the Vanguard Short-Term Corporate Bond ETF (VCSH) , Vanguard Intermediate-Term Corporate Bond ETF (VCIT) and Vanguard Long-Term Corporate Bond ETF (VCLT) .
U.S. corporate bonds are enjoying a stronger tailwind in an environment of strong economic growth, healthy earnings and dropping default rates.
VCT: Making Life Easy on Income Investors
VCT “is one of Vanguard’s newest ETFs, having debuted late last year, so its $45.4 million in assets should not be viewed as an indictment. Actually, VTC makes life easy on income investors,” reports InvestorPlace. “This Vanguard ETF is comprised of the issuer’s other corporate bond exchange-traded funds, giving investors exposure to over 5,000 high-grade corporate bonds across myriad durations. VTC’s average duration is 7.6 years and its average effective maturity is 11.3 years.”
The ETF-of-ETFs structure allows investors to gain exposure to more than 5,500 U.S. corporate bonds by taking advantage of the existing exposure and scale offered by the underlying existing ETFs. This approach achieves near complete replication of the benchmark as well as tighter bid/ask spreads and lower operating expenses than investing directly in the benchmark’s constituents.
The recently passed tax reform legislation could be a boost for investment-grade corporate bonds.
“Because investment-grade companies have been paying effective rates that are higher than the new corporate rate of 21%, and many high-yield companies pay little or no tax, we expect the former to fare better under the new law,” Stuart Hosansky, senior analyst for taxable securities in the Fixed Income Group at Vanguard, according to a report in Investopedia.
VTC has a 30-day SEC yield 3.28% and an average effective duration of 7.44 years.
For more information on the bond market, please visit our fixed income channel.
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