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The choice between the Vanguard Long-Term Corporate Bond ETF (NASDAQ:VCLT) and the Vanguard Long-Term Treasury ETF (NASDAQ:VGLT) hinges on the trade-off between the credit safety of Treasuries and the higher yield potential of corporate debt.
Both funds target the long end of the maturity spectrum, focusing on bonds with durations between 10 and 25 years. This duration focus makes both sensitive to interest rate shifts, though VCLT adds a layer of corporate credit risk to the portfolio in exchange for higher income.
Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
Both Vanguard funds are exceptionally efficient, sporting identical 0.03% expense ratios. However, the Vanguard Long-Term Corporate Bond ETF provides a noticeably higher payout, currently offering a 5.9% yield compared to 4.9% for the Treasury-focused fund.
Vanguard Long-Term Corporate Bond ETF is a fixed income fund with no equity sector breakdown, holding 2,569 investment-grade corporate bonds. The fund is highly diversified -- its largest positions include high-quality corporate debt, and no single position exceeds 0.37% of the portfolio. It was launched in 2009. Vanguard Long-Term Corporate Bond ETF has paid $4.16 per share over the trailing 12 months, which, on its recent ~$70.26 share price, works out to a 5.9% yield.
Vanguard Long-Term Treasury ETF is also a fixed income fund with no equity sector breakdown, holding 104 U.S. government obligations. It was launched in 2009. Vanguard Long-Term Treasury ETF has paid $2.52 per share over the trailing 12 months, which, on its recent ~$51.93 share price, works out to a 4.9% yield.
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When comparing the Vanguard Long-Term Corporate Bond ETF (VCLT) and the Vanguard Long-Term Treasury ETF (VGLT), investors should consider several key factors. Let's see what they tell us about each fund.
First, we should examine each fund's strategy. VCLT is a corporate bond fund and holds over 2,500 individual bonds. VGLT, by contrast, is a Treasury bond ETF that holds about 100 bonds.
Two other important factors are historical performance and income potential. Over the last five years, VCLT has generated a total return of -17%, equating to a compound annual growth rate (CAGR) of -3.7%. VGLT, by contrast, has delivered a total return of -31%, with a -7.2% CAGR. As for income, VCLT has the higher yield, at 5.9%, while VGLT's is 4.9%.
One final factor to weigh is cost. Both funds have identical 0.03% annual expense ratios, making them both extremely affordable options.In summary, VCLT and VGLT are both bond ETFs, but they target different segments of the fixed-income market. In a head-to-head matchup, many investors will favor VCLT for its higher yield and better historical performance, although more risk-averse investors may still prefer VGLT given its U.S. Treasury focus.
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Jake Lerch 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.
Corporate Yield vs. Government Safety: Comparing Returns, Dividends, and Risk of VCLT and VGLT was originally published by The Motley Fool