Need Long-Term Corporate Bonds with Rock-Bottom Fees?

In a fixed income landscape dominated by low yields and pandemic fears, long-term corporate bonds are earning their place at the table with exchange traded funds (ETFs) like the Vanguard Long-Term Corporate Bond Index Fund ETF Shares (VCLT).

Exactly which type of investor is best suited for long-term corporate bonds? For one, the risk-on, yield-hungry investor.

"Long-term corporate bonds typically offer higher returns in comparison to their short-term or intermediate-term counterparts," an Investopedia article explained. "However, long-term corporate bonds are much more sensitive to interest rate changes, and they are likely to show a lot of volatility when interest rates in the United States rise."

"Investors interested in diversifying their portfolios with long-term corporate bonds have several compelling high-yielding exchange-traded funds (ETFs) to choose from," the article added, noting that VCLT is one of the premier options.

As per the fund description, VCLT seeks to track the performance of a market-weighted corporate bond index with a long-term dollar-weighted average maturity. The fund carries a low 0.05% expense ratio.

Furthermore, the fund employs an indexing investment approach designed to track the performance of the Bloomberg Barclays U.S. 10+ Year Corporate Bond Index. This index includes U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities greater than 10 years. Under normal circumstances, at least 80% of the fund’s assets will be invested in bonds included in the index.

High-Quality Debt Exposure

While the global economic recovery is stagnating in certain areas due to new variants of Covid-19, getting quality debt exposure is also a must. VCLT focuses on investment-grade debt issues that have a lower risk of default—with bond maturity dates beyond 10 years.

"The Vanguard Long-Term Corporate Bond ETF (VCLT) was started in November 2009 to track the investment results of the Bloomberg Barclays U.S. 10+ Year Corporate Bond Index, which is composed of high-quality U.S. corporate bonds that mature mostly in 20 years or more," the Investopedia article said.

"The fund has $5.5 billion in total fund assets and 2,461 bonds in its portfolio," the article added. "The ETF's bond holdings are concentrated on industrials (69.5%), financial services companies (17.3%), and utilities (11.8%). Yield-to-maturity for the fund's portfolio stands at 3.4% and the average duration is 14.6 years."

VCLT 1 Year Performance

For more news, information, and strategy, visit the Fixed Income Channel.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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