The 3 Best Vanguard Bond Funds
Key takeaways:
• Vanguard offers a strong selection of mutual funds and exchange-traded funds.
• Some of these funds focus on bonds and other fixed-income securities.
• Three standout bond funds from Vanguard are VEMBX, VGIT, and VWAHX.
Overview of Vanguard’s Top Bond Funds
Vanguard’s fixed-income funds have outperformed similar funds on a risk-adjusted basis, earning high ratings from analysts. Here are three of their top bond funds:
Vanguard Emerging Markets Bond Fund (VEMBX)
VEMBX is Vanguard’s mutual fund that invests in bonds from entities in emerging-market countries, primarily government or government-backed corporations. While it holds foreign debt, many securities are denominated in U.S. dollars or hedged to the dollar.
As an investor-shares fund, VEMBX requires a minimum investment of $3,000, whether purchased at Vanguard or through another broker. The fund’s expense ratio is 0.55%, which is competitive for an actively-managed fund. Yes, this is an active fund, even though it’s from Vanguard.
There’s another version of this fund, VEGBX, with the same bond portfolio but a $50,000 investment minimum. VEGBX has a lower management fee of 0.40% and is classified as an Admiral-shares fund. Both versions are actively managed.
VEMBX has a 30-day SEC yield of 6.25%, while VEGBX offers 6.40%. Since its inception, VEMBX has delivered an annualized return of 6.57%.
Both funds have received 5 stars from Morningstar for 5-year and overall performance, with a 4-star rating for 3-year performance. Lipper also gives both funds 5 stars across these timeframes.
Here are some of the bonds driving these impressive returns:
| Issuer | Coupon | Maturity date |
|---|
| Republic of Hungary | 5.000% | 2/22/27 |
| Kingdom of Jordan | 7.375% | 10/10/47 |
| Banque Ouest Africaine De Developpement | 4.700% | 10/22/31 |
Vanguard Intermediate-Term Treasury Index Fund (VGIT)
For those seeking safety over the higher risk of emerging markets, VGIT offers an excellent alternative. This fund invests in U.S. Treasury securities, specifically Treasury Notes and Bills that mature in less than 10 years. VGIT has an effective duration of 4.98 years and an effective maturity of 5.60 years. Its average credit rating is AAA, providing a high level of safety. The 30-day SEC yield is currently 4.23%.
VGIT’s expense ratio is just 0.04%, thanks to its passive management. The fund has received 5- and 4-star ratings from both Morningstar and Lipper for multiple timeframes.
Unlike the mutual funds mentioned above, VGIT is an exchange-traded fund (ETF) that can be traded throughout the market day. For those preferring a mutual-fund format, VGIT has a sister fund with the ticker symbol VSIGX, which holds the same portfolio. The mutual fund avoids the bid-ask spread of the ETF but has a slightly higher expense ratio (0.07% compared to 0.04%).
Vanguard High-Yield Tax-Exempt Fund (VWAHX)
The last fund on our list of top Vanguard bond funds is VWAHX. This municipal bond fund invests in local and state debt that offers above-average returns on a tax-adjusted basis. While most of its securities are investment-grade, the fund’s average credit rating is A, which is lower than the Treasury fund. A few bonds in the portfolio are rated AAA, while others are rated BB. The effective maturity of VWAHX is 14.31 years, so it focuses on intermediate-term bonds.
VWAHX is actively managed and has an annual expense ratio of 0.17%. Its current 30-day yield is 4.05%, not including tax adjustments. Tax-adjusted yields are typically higher.
A minimum investment of $3,000 is required for this fund, as is standard for Vanguard’s Investor-share funds. The Admiral-shares version of this fund (VWALX) has a lower expense ratio of 0.09% but requires a $50,000 minimum investment. Both versions share the same bond portfolio, which includes:
| Issuer | Coupon | Maturity date |
|---|
| Sacramento CA City Unified School District GO | 5.500% | 8/1/52 |
| University of California College & University Revenue | 5.000% | 5/15/43 |
| Pronghorn Valley Metropolitan District GO | 3.750% | 12/1/41 |
Vanguard’s High-Yield Tax-Exempt Fund has received top ratings, earning 5 stars from both Morningstar and Lipper for all timeframes analyzed.
Best Commission-Free Brokers
Fees
Vanguard funds, whether mutual or exchange-traded, are always no-load. When purchased directly from Vanguard, they are also commission-free. Some brokerage firms may charge transaction fees for Vanguard mutual funds, but at Firstrade, they are commission-free.
Best Vanguard Bond Funds Judgment
With low fees, excellent ratings, and a history of strong performance, Vanguard’s bond funds are a solid choice for investors.
Updated on 1/1/2025.
Continue Reading