Exploring a Bond Fund with Minimal Exposure to Rate Hikes

As its name implies, the Vanguard Short-Term Bond ETF (BSV) tracks shorter-term U.S. government, investment-grade corporate and investment-grade international dollar-denominated bonds.

Informed investors are probably aware that bond yields remain at or near historically low levels. Additionally, there is worry that subsequent rate hikes by the Federal Reserve could create an inverse yield curve detrimental to many investments at some point in the near future. Under these conditions, investing in short-term bond exchange-traded funds (ETFs) is preferable to being in ETFs focused on long-term bonds, as there is less potential that fallout from the Fed???s interest rate hikes will affect the securities. All of the bonds in BSV???s portfolio have maturities ranging anywhere from one to five years.

With over $50 billion of total assets under its belt and $118 million in daily trading volume, BSV is a substantial fund with a lot of liquidity. The fund is passively managed using index sampling and is also held by many large investment banks as a way to diversify portfolios and hedge against risk.

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