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Build an ETF Portfolio That Emphasizes Income

BY | ETF Database
01/16/2025 | 1434 VIEWS
The prospect of rate cuts may be in jeopardy, as inflation appears to be stickier than anticipated. If economic growth does eventually subside and the Fed continues its rate-cutting path, investors will want to build a portfolio that emphasizes income.Fortunately, Vanguard has funds that can cater to maximizing yield if the Fed can guide the economy to a proverbial soft landing. On that note, Vanguard is also expecting yields to fall, but settle to 4.3%–5.3% annualized returns in U.S. and global ex-U.S. currency-hedged bonds.3 Vanguard ETFs to Consider“While central banks are now easing monetary policy, we maintain our view that policy rates will settle at higher levels than in the 2010s,” Vanguard noted in an investment outlook for bonds, which is proving to be favorable despite the current uncertainty in the early months of the new year. “This environment sets the foundation for solid cash and fixed income returns over the next decade.” Vanguard also offers up portfolio solutions for fixed income investors based on their goals. In the case of income, one ETF to consider is the Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH A). Corporate bonds can also prosper during rate cuts, as debt service costs fall, thereby increasing creating favorable debt-to-income ratios. Overall, VCSH tracks the the performance of the Bloomberg U.S. 1-5 Year Corporate Bond Index. The index includes U.S.-dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities between one and five years. The fund has a 30-day SEC yield of 4.84% as of January 8, paired with a low expense ratio of 0.04%. Another ETF for income is a broad option in the Vanguard Total Bond Market Index Fund ETF Shares (BND A).  It seeks to track the performance of the Bloomberg U.S. Aggregate Float Adjusted Index. The fund offers a diversified option as its index covers a wide array of public, investment-grade, taxable, fixed income securities in the U.S., including government, corporate, and international-dollar-denominated bonds, as well as mortgage- and asset-backed securities. The fund is ideal for core bond exposure, but also for yield, with its 4.58% 30-day SEC yield and low 0.03% expense ratio.Cost-Effective, Active IncomeActive management strategies, especially in fixed income, are seeing greater demand in recent years. In the case of income-producing strategies, consider the Vanguard Core-Plus Bond ETF (VPLS A) as an option to a passive fund or to use it in tandem with an existing fixed income portfolio mostly comprising individual bonds. VPLS offers an 0.20% expense ratio, making it a cost-effective option that taps into Vanguard’s experienced Fixed Income Group. Active management allows Vanguard’s portfolio managers to adjust holdings based on current market conditions, allowing for greater market flexibility. Also as of January 8, its 30-day SEC yield is 4.84%.For more news, information, and analysis, visit the Fixed Income Channel.

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