Bond Fund Offers Safer Haven

One of the many uses of exchange-traded funds (ETFs) is that they let investors conveniently and accessibly invest assets in markets that trade less frequently.

In the search for stability, the bond market stands out as an obvious way to produce income without gaining exposure to volatile fluctuations in share price. Vanguard Total Bond Market ETF (BND) is a fund that includes investment-grade U.S. bonds of all stripes.

BND does not only invest in government bonds. Though it does include U.S. Treasury bonds of various durations, the total bond market also includes investment-grade corporate bonds, asset-backed securities and other positions. The fund tends toward short- and medium-term bonds and does not include any bonds with a credit quality below Baa. Plus, more than half of its assets are invested in ultra-low-risk government bonds.

In the past 12 months, BND has climbed in value by 2.18%, with recent market turmoil barely registering. It manages $27.1 billion in net assets, and its 0.08% expense ratio makes it cheaper than its peers. As a bond fund, BND provides fixed income, in this case an overall 2.47% dividend yield.

All of BND’s holdings are bonds. Of those, 64% are U.S. government bonds, including 40.6% in Treasury bonds, 20% in government mortgage-backed securities and 3.4% in agency bonds. In addition, 15.4% of BND’s assets are invested in industrial bonds. Further, 13.5% of the bonds have a rating of Baa, while 22.5% are non-government investment-grade bonds with higher ratings.

In terms of duration, only 1.4% of these bonds have durations of less than a year. The majority range between one and 10 years in a roughly even distribution, while 15.7% have longer durations.

Conservative investors are known for holding a portion of their portfolio in bonds as a safety measure. If you’re seeking a bit more security than volatile markets can offer, Vanguard Total Bond Market ETF (BND) may be a great place for your assets.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful ETF Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.

In case you missed it, I encourage you to read my e-letter column from last week about seeking profits in calmer waters. I also invite you to comment in the space provided below.