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Patience Needed for This Interest-Rate-Sensitive Bond Fund

Elizabeth Foos

Beth Foos: Vanguard Long-Term Investment-Grade's strong record, experienced team, and low expenses earn it a Morningstar Analyst Rating of Silver.

This fund is one of the most interest-rate-sensitive options in Morningstar's corporate-bond category, but that's by design. The fund's manager, Scott St. John, keeps the portfolio's duration within one year of its long index and maintains a focus on bonds with an investment-grade ratings. His team at subadvisor Wellington Management Company combines broad market views with bottom up research to find value on the long end of the yield curve.

Recently that's led to higher stakes in bonds issued in the financial and industrial sectors compared to its benchmark. Over the past decade, the fund's significant interest-rate sensitivity and the team's credit selection have been a tailwind for returns.

Yet patience is still required here. The fund's performance can lag its peers when rates are on the rise as we saw in mid-2013 and again in late 2016 and early 2018. The team notes that this fund is particularly attractive to institutional investors looking to match long-dated liabilities.