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Best Vanguard Bond Funds

List of the best Vanguard Bond mutual funds and ETFs with the highet Morningstar rating. Top performing, best returns Vanguard Bond funds for retirement or investment account: Vanguard's High-Yield Corporate Bond Fund (VWEHX), Vanguard Long-Term Investment-Grade Fund (VWESX)

Best Vanguard Bond Funds

Bond investors who are looking for low-cost funds should consider what Vanguard has to offer. The broker has a large selection of mutual funds and ETFs with low expense ratios. Many of these products invest solely in debt instruments. The following four bond funds in particular have performed well compared to their peers.

Vanguard High-Yield Corporate Bond Fund (VWEHX)

Vanguard's High-Yield Corporate Bond Fund takes on more risk than a typical bond mutual fund by investing in debt securities that are considered below investment grade. However, the fund attempts to trade bonds that are higher rated than other junk bonds. This strategy tries to reduce NAV volatility and the number of debt defaults within the portfolio. The fund was established in 1978 and pays a monthly dividend.

The current yield on VWEHX is around 4.4%, a very nice income stream. This return is above average compared to most bond funds. On top of the great yield, the fund's expense ratio is only 0.23%. The fund has total assets over $20 billion, making it a very large portfolio. The average credit rating of the fund's bonds is B. The average maturity is 5.8 years, making this an intermediate-term fund.

Morningstar considers the return potential of the portfolio to be average, while the risk is below average, producing a nice balance. Despite a down year in the economic turmoil of 2008, the fund's annualized 15-year return is 6.59%, which demonstrates its return capability over the long term.

Best Vanguard Bond Fund

Vanguard Long-Term Investment-Grade Fund (VWESX)

For investors who don't want the volatility of bonds that are below investment grade, Vanguard offers the Long-Term Investment-Grade Fund. Its portfolio contains only debt securities that are rated higher than B. The average credit quality of the fund is A. More than 75% of the bonds are corporate securities. Over 10% of the bonds are rated AAA, which is higher than the category average of 5%. The maturity of the average bond in the portfolio is 23 years, which definitely makes this fund a long-term product.

The fund's current dividend yield is around 3.2%, which is somewhat lower than VWEHX. Nevertheless, the Long-Term Investment-Grade Fund is less volatile, despite the fact that the average maturity of its bonds is actually longer than the high-yield bond fund (23 years versus 5.8). Its 10-year annualized performance is 8%, which beats its category average by more than 2 percentage points.

Morningstar has awarded the fund 5 stars, its highest grade. VWESX pays dividends monthly and capital gains yearly. The portfolio has over $5 billion in assets, making the fund large compared to many of its peers. The fund has no load, but does carry a $3,000 minimum purchase amount. It can be bought with no transaction fee on the Vanguard website.

Morningstar Best Vanguard Bond Fund

Vanguard Tax-Exempt Bond ETF (VTEB)

Investors who are in a high tax bracket may be interested in Vanguard's Tax-Exempt Bond ETF. This fund invests solely in American municipal securities, whose income payments are tax free at the federal level. It is also the policy of the exchange-traded fund to invest only in investment-grade bonds. The ETF tracks the S&P National AMT-Free Municipal Bond Index. S&P Capital IQ has graded the fund a buy.

The portfolio has slightly less than $500 million in assets, so it's a medium-size fund. The average credit quality of the fund's holdings is AA, a notch lower than the highest rating possible. The dividend yield is currently 1.4% and the expense ratio is just 12 basis points. While the yield may not sound very attractive, the monthly dividend payments the fund makes are generally tax exempt for most investors at the federal level and in many states. This policy makes the tax-adjusted yield higher than 1.4%. VTEB's average volume on the stock exchange is around 73,000 shares daily. This activity produces a bid-ask spread of around 0.15%. The fund was just launched in 2015; so far, VTEB has outperformed the Barclays Municipal Total Return index on a 12-month basis.

Vanguard Top Bond ETF

Vanguard Long-Term Government Bond ETF (VGLT)

Traders who want the safety of taxable government debt should take a look at Vanguard's Long-Term Government Bond ETF. This fund has an expense ratio of only 0.10%, very low by industry standards. It is passively managed and tracks the Barclays Capital U.S. Long Government Float Adjusted Index. This index includes debt instruments issues by the U.S. Treasury with maturities of at least 10 years. The index also includes corporate and foreign debt guaranteed by the U.S. government, but does not include any inflation-protected bonds.

VGLT pays dividends monthly. The current yield of the fund is slightly more than 2%. Its total return over a 5-year period is 6.5%, which is excellent for a low-risk investment. Lipper ranks the ETF 5 out of 5 among U.S. government funds.

Vanguard Best Bond Fund

Best Vanguard Bond Funds Summary

Vanguard (Vanguard brokerage account review) operates a wide range of bond funds that are performing well compared to their peers. These include both mutual and exchange-traded funds, short-term and long-term, high-yield and low-yield, small and large portfolios, corporate and government. Even better, all of them are free to trade in a Vanguard account.

Best Vanguard Bond Funds reviewed by Rating: 5