ETF Specialist

Cheap Exposure to Investment-Grade Corporate Bonds

Phillip Yoo, CAIA

The Bloomberg Barclays U.S. Aggregate Bond Index, which is the most common benchmark for the U.S. investment-grade market, has less credit risk than most of its peers, skewing toward low-yielding Treasury bonds and agency mortgage-backed securities. Investors looking for higher potential returns without straying beyond the investment-grade universe or taking greater interest-rate risk might consider a low-cost corporate-bond fund like  Vanguard Intermediate-Term Corporate Bond ETF (VCIT).

This exchange-traded fund provides market-cap-weighted exposure to investment-grade U.S. corporate bonds with between five and 10 years until maturity. It is one of the lowest-cost options in the corporate-bond Morningstar Category and has tightly tracked the Bloomberg Barclays U.S. 5-10 Year Corporate Bond Index. While there's plenty to like here, it's important to note that this fund has heavy exposure to the financial-services sector, which could be a source of risk. It earns a Morningstar Analyst Rating of Silver.

Phillip Yoo, CAIA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.