Vanguard exchange-traded funds (ETFs) are sort of like ice cream -- there's a flavor for everyone. Growth investors have multiple great options in the Vanguard family of funds, as do value investors.
Are you looking for income? Vanguard has you covered, too. While there are several good alternatives for income investors, one Vanguard ETF especially stands out.
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A one-of-a-kind Vanguard ETF
Vanguard markets over 20 bond ETFs, but only one of them focuses on bonds issued by the governments of emerging nations -- the Vanguard Emerging Markets Government Bond ETF (NASDAQ: VWOB) .
This Vanguard ETF attempts to track the performance of the Bloomberg USD Emerging Markets Government RIC Capped index. Its focus is on debt denominated in U.S. dollars issued by government-owned, government-guaranteed, and government-sponsored agencies. The RIC in its name stands for "regulated investment company," a reference to the requirement that the index meets the diversification guidelines any fund must adhere to in order to qualify as a regulated investment company.
The Vanguard Emerging Markets Government Bond ETF currently owns 733 bonds, which is a little higher than the 721 bonds in the Bloomberg USD Emerging Markets Government RIC Capped index. The latter index underscores that while the ETF attempts to track the index's performance, it won't always exactly match it. The average effective maturity of the ETF's bonds is 12.1 years.
Nearly all of the bonds (97.2%) held by the Vanguard ETF were issued by government agencies in emerging markets. Another 2.2% of the bonds were issued by European governments, with the remaining ones issued in the Middle East or other parts of the world.
Pros of the Vanguard Emerging Markets Government Bond ETF
For income investors, the main plus for the Vanguard Emerging Markets Government Bond ETF is its ultra-high yield of 6.07%. This yield is high historically for the fund. Since its inception in May 2013, the Vanguard ETF's yield has typically been below 5%.
There's also another perk with this ETF for income investors -- it pays distributions monthly. Distributions are usually paid within the first three to five days each month to all owners of the fund as of the first of the month.
You won't need much money to get started with this Vanguard ETF. The minimum investment is technically only $1, although its share price currently hovers around $65.
Vanguard is known for its low-cost funds. The Vanguard Emerging Markets Government Bond ETF doesn't disappoint on this front. Its annual expense ratio is 0.2%, well below the average expense ratio of 0.99% for similar funds.
Cons of this Vanguard ETF
No ETF is perfect, though. One downside to this Vanguard ETF is that, unlike municipal bonds issued in the U.S., the bonds in the fund's portfolio are taxable. However, investors can mitigate this by holding the ETF in tax-advantaged accounts, such as IRAs and 401(k) plans.
Any investment vehicle will be subject to some risk. The Vanguard Emerging Markets Government Bond ETF, though, comes with greater risks than many other Vanguard bond ETFs. The bonds of government agencies in emerging markets are likely to be significantly more volatile and less liquid than bonds issued by the governments of developed nations, such as the U.S.
Also, while this Vanguard ETF pays a juicy distribution, its performance tends to be lackluster. As of Sept. 30, 2024, the fund's net asset value (NAV) has increased only 8% year to date. Since the ETF's inception on May 31, 2013, its NAV has risen by an average of only 3.09% per year.
Because of these negatives, the Vanguard Emerging Markets Government Bond ETF isn't a good pick for growth investors or risk-averse income investors. But for aggressive income investors, this Vanguard ETF could be an ideal addition to their portfolios.
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .
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