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 first half of the year was obviously highlighted by the “Liberation Day” sell-off in early April. The equities volatility spilled over into the debt markets, and corporate bonds weren’t immune to the market movements. However, there were some bright spots in the corporate bond market, particularly VCIT. While active fixed income has been garnering much of the attention thus far this year, the passive VCIT has been able to distinguish itself.
More Yield, Less Credit Risk
VCIT specifically tracks the Bloomberg U.S. 5-10 Year Corporate Bond Index. More than 90% of the fund is allocated to debt rated A and BBB, staying within the investment-grade category. When compared to active peers, VCIT eschews riskier exposure to extract more yield. For the risk averse, this makes VCIT all that more appealing.
“More flexible active category peers often take on a small position in high-yield bonds instead in their quest to add incremental value,” said Lan Anh Tran, Morningstar manager research analyst. “Bypassing riskier bonds has helped this fund better protect against widening credit spreads during credit shocks.”
As explicitly stated, its holdings have maturities within the five- to 10-year range. Its 30-day SEC yield is at 5.11% as of July 3 and it has a low expense ratio of 0.03%.
As mentioned, adding to the allure of VCIT was its relatively strong performance in Q2. Among its passive peers, it ranked highly amid Morningstar’s category averages in a quarter that saw mostly muted performance from similar funds.
“The fund’s low fee and broad portfolio contributed to its excess returns, and its tilt toward quality and lower duration also worked to its benefit,” Tran added. “Most recently, it outpaced the category average by 1 percentage point during the first five months of 2025 as investors flocked to safer assets amid volatility in the market. The fund remains a precise tool for investors targeting high-quality, intermediate-term corporate bonds.”
2 More Corporate Options
Fixed income investors looking for tailored exposure to either short- or long-term corporate bonds have other low-cost options available. Like VCIT, these options are also a paltry 0.03%.
With rate cuts potentially looming, fixed income investors may want to preserve yield with short-term bonds. With an average maturity and duration of under three years, consider the Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH). The fund seeks to track the performance of a market-weighted corporate bond index with a short-term dollar-weighted average maturity. It employs an indexing investment approach designed to track the performance of the Bloomberg Barclays U.S. 1-5 Year Corporate Bond Index. As of July 3, its 30-day SEC yield stands at 4.57%.
For those who don’t mind the rate risk by stepping further out onto the yield curve, the Vanguard Long-Term Corporate Bond Index Fund ETF Shares (VCLT) just might do. The fund tracks the performance of the Bloomberg U.S. 10+ Year Corporate Bond Index. This index includes U.S.-dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies with maturities greater than 10 years. Its 30-day SEC yield is 5.81% as of July 3.
For more news, information, and analysis, visit the Fixed Income Content Hub.
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