Vanguard World Funds Extended Duration ETF

EDV

Market cap $3.99B

Vanguard Extended Duration Treasury Index Fund ETF Shares provides a natural hedge against market corrections and potential recessions in the U.S. economy. EDV's price typically rises when interest rates fall, making it an effective counterbalance to equity market risk during economic downturns or rate cuts. Current market valuations are stretched, with high P/E and CAPE ratios, rising unemployment, and persistent geopolitical tensions, signaling late-cycle risks.

Given heightened economic uncertainty, I am leaning more defensive and sticking with my dividend growth investing strategy, emphasizing diversification and income stability. The frozen housing market, soft labor conditions, and stagnating consumer spending signal potential economic weakness, despite optimism in select sectors like tech. My ETF portfolio review shows shifting leadership, with midstream energy outperforming previously, but preferreds and tech-focused ETFs now leading as trends evolve.

Long-term U.S. treasuries were pushed lower Tuesday as the ouster of Federal Reserve Gov. Lisa Cook by President Donald Trump fueled uncertainty regarding the independence of the central bank and monetary policy direction.

Latest geopolitical developments have led me to see SPY's valuation risk is at its highest since the dot-com bubble. Traditional fixed allocation models like 60/40 equity-bond split are ineffective during current extreme market conditions. Unusual market conditions are often followed by wide swings in bond and/or stocks prices, offering unusual opportunities to dynamical allocation and alpha generation.

EDV is a risky bet as economic fundamentals support higher long-term interest rates, driven by worsening U.S. fiscal deficits and inflationary policies. Trump's domestic and trade policies are set to increase deficits, fuel inflation, and deter foreign buyers of U.S. treasuries, pushing yields higher. Technicals suggest 30-year yields could break out to 6.5%, implying over 30% downside for EDV due to its high duration.

Moody's U.S. credit downgrade has pushed long-term Treasury yields higher, making Vanguard Extended Duration Treasury Index Fund ETF Shares's return/risk profile unusually attractive versus equities. EDV offers a compelling package among many peer ETFs such as low fees and strong liquidity. With equity valuations stretched and geopolitical risks elevated, EDV provides valuable diversification and acts as an effective hedge in volatile markets.

Don't discount the power of momentum. Some studies have found that momentum trading -- buying stocks or exchange-traded funds (ETFs) that are going up -- often works over the short to medium term.

The 10-year yields drop to the lowest level since December, driving Treasury ETFs higher.

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The 'Undercovered' Dozen series highlights lesser-covered ETFs, offering insights from various authors on potential opportunities and trends in this space. The Janus Henderson AAA CLO ETF (JAAA) invests in AAA tranches of CLOs, providing lower risk through diversification and predictable outcomes, according to John Bowman. Stratos Capital Partners views the Vanguard Extended Duration Treasury ETF (EDV) as attractive for its high-yield and potential bond price appreciation as interest rates decline.