Quick Read
Low Fees Matter: VCIT charges just 0.03% in expense ratios, or roughly $3 annually per $10,000 invested.
Investment-Grade Focus: VCIT concentrates on high-quality corporate bonds with intermediate duration exposure and a 5.13% SEC yield.
Taxes Can Erode Returns: Distributions are taxed as ordinary income, making VCIT better suited for tax-advantaged accounts like Roth IRAs.
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The analyst who called NVIDIA in 2010 just named his top 10 stocks and Vanguard Intermediate-Term Corporate Bond ETF wasn’t one of them. Get them here FREE.
Vanguard’s most popular bond ETF is also the largest U.S.-listed bond ETF by assets under management (AUM). It is the Vanguard Total Bond Market ETF (NASDAQ:BND). For a 0.03% expense ratio, investors get exposure to more than 10,000 investment-grade corporate bonds, Treasury bonds, and mortgage-backed securities spanning short-, intermediate-, and long-term maturities. It is highly popular because it is cheap, diversified, and simple. A lot of investors use it as the bond allocation for the classic 60/40 balanced portfolio.
But like many jack-of-all-trades funds, BND is also a master of none. It is not the highest-yielding bond ETF. It is not the safest bond ETF. And it is not the most targeted way to position yourself based on interest rate expectations or credit quality preferences. It really sits right in the middle of the pack. That is not necessarily a bad thing. For investors who just want broad exposure to the U.S. investment-grade bond market, BND remains a perfectly reasonable option.
Still, if you want to be a bit more discerning with your bond allocation, Vanguard has several alternatives that are just as affordable while offering much more specificity. If your focus is investment-grade corporate bonds, meaning bonds rated BBB and higher, one ETF worth considering is the Vanguard Intermediate-Term Corporate Bond ETF (NASDAQ: VCIT).
What Is VCIT?
VCIT is a passive ETF that tracks the Bloomberg U.S. 5–10 Year Corporate Bond Index. This benchmark currently includes 2,235 investment-grade corporate bonds. The portfolio is dominated by BBB-rated bonds, which make up roughly 47% of holdings, followed by A-rated bonds at approximately 45%. While there are some AA- and AAA-rated issuers in the fund, they represent a much smaller share of the portfolio. That is fairly typical for corporate bond markets because there simply are not many companies with extremely high credit ratings.
