Vanguard Long-Term Corporate Bond ETF

VCLT

Market cap $8.21B

ETFs can provide diversification because they provide exposure to a basket of stocks. But with a high-yield ETF, it's essential to understand what it owns and its level of risk.

Corporate bonds typically appeal to those seeking higher yield potential relative to safer government debt, but current market uncertainty may keep fixed income investors from making the move. However, strong fundamentals are also underpinning corporate bonds, which only add to their appeal despite ongoing risks.

The Vanguard Long-Term Corporate Bond ETF and iShares iBoxx Investment Grade Corporate Bond ETF both offer exposure to investment-grade corporate bonds. VCLT offers lower costs and a higher yield, making it more appealing to income-focused investors.

After the Fed just cut rates a second time this year, a steeper yield curve could force bond investors to reconsider the long end again. That said, they can play the long game with ETF options from Vanguard that focus on maximizing yield by investing in bonds with maturity dates extending past 10 years.

Vanguard Long-Term Corporate Bond Index Fund ETF Shares offers diversified exposure to long-term U.S. corporate bonds, tracking its benchmark passively. VCLT's returns depend on monthly bond coupons and price changes driven by interest rate and credit spread movements. Current macroeconomic indicators suggest a neutral environment for VCLT, with stable long-term rates and reasonable credit spreads.

Elected officials' continued debate about the budget on Capitol Hill could spur additional interest rate cuts. Given these current market forces, fixed income investors may want to reposition their portfolios to attain corporate bond exposure.

With an eye on mitigating rate risk, short-term bond funds have been the apple of fixed income investors' eyes the past few years. But with rates falling, those same eyes may be wandering and looking at long-term bond ETFs.

Investors seeking a Goldilocks option to balance yield and rate risk may want to consider intermediate bonds. One fund that's coming off a strong second quarter and worthy of consideration is the Vanguard Interim-Term Corporate Bond ETF (VCIT).

The bond market looks increasingly focused on slowing economic growth vs. tariff inflation.

VCLT offers diversified, investment-grade, long-term corporate bond exposure with a 5.7% yield but carries significant duration risk due to rate sensitivity. Despite low fees and high liquidity, the Fund has underperformed peer ETFs on a total return basis, making it a less optimal choice. Current inflation trends and delayed Fed rate cuts increase the risk of adverse returns for long-dated bonds like those held in Vanguard Long-Term Corporate Bond Index Fund ETF Shares.