Credit risk

2 Corporate Bond ETFs to Extract More Yield and Mitigate Credit Risk

Corporate bonds offer fixed income investors the opportunity to earn more yield, which is necessary given the current market environment where rising inflation and the prospect of higher interest rates make investors nervous.

Investors wishing to meet in the middle of short and long durations to obtain more yield without additional rate risk can opt for the Vanguard Interim-Term Corporate Bond ETF (VCIT). As of February 17, the fund’s 30-day SEC yield was 2.85%.

VCIT seeks to track the performance of a market-weighted corporate bond index with a medium-term dollar-weighted average maturity. The fund uses an index investing approach designed to track the performance of the Bloomberg Barclays US 5–10 Year Corporate Bond Index, which includes high-quality, fixed-rate, US dollar-denominated taxable securities issued by corporations industrial, public service and financial. companies, with maturities between five and ten years.

Gain exposure to ESG corporate bonds

There is no denying that environmental, social and governance (ESG) investing has proven itself in recent years. Fixed income investors may associate this strength with corporate bonds.

As the trend toward more green bonds by U.S. corporations continues to grow, bond investors can get in on the action with the Vanguard ESG US Corporate Bond ETF (VCEB). Bond investors can combine the benefits of higher yields and ESG principles with VCEB.

In accordance with its fund description, VCEB seeks to track the performance of the Bloomberg MSCI US Corporate SRI Select Index. The index excludes bonds with maturities of one year or less and less than $750 million outstanding and is reviewed for certain ESG criteria by the index provider, which is independent of Vanguard.

VCEB Highlights:

  • Provides debt issues filtered according to certain ESG criteria.
  • Specifically excludes bonds of companies which the index sponsor determines are involved in and/or derive threshold amounts of income from certain activities or business segments related to adult entertainment, alcohol, gambling money, tobacco, nuclear weapons, controversial weapons, conventional weapons, civilian firearms, nuclear energy, genetically modified organisms or thermal coal, oil or gas.
  • Excludes corporate bonds that, as determined by the index sponsor, do not meet certain standards defined by the index sponsor’s ESG Controversy Assessment Framework, as well as companies that have not at least least one woman on their board.

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