VCIT ETF

VCIT offers a conservative interest rate play because of its investment-grade corporate bonds, moderate rate sensitivity, and high yield. The ETF's past performance is strongly correlated to monetary policy shifts, so it establishes a strong case for using it to position a portfolio right now. However, there are risks you should keep in mind and protect yourself from, such as a faster or even slower pace in policy rate reductions.

Fixed income is becoming an increasingly attractive asset class, especially given the recent surge in yields following the outcome of the U.S. elections. We view this as an opportunity to reiterate our bullish view on investment-grade fixed income, as we expect the asset class to deliver superior risk-adjusted returns in the next 1-3 years. Many analysts interpret the recent surge in yields as a reflection of growing concerns that Trump's proposed policies will lead to widening fiscal deficits and stoke inflationary pressures.

With the expectation that the Federal Reserve will continue to cut interest rates, corporations proceeded to issue more bonds in Q3. Given this, fixed income investors have options, including three from Vanguard.

With the expectation that the Federal Reserve will be able to deftly guide the economy into a soft landing, the spread between corporate bonds and safe haven Treasuries has been narrowing. As the Financial Times noted, the spread between the two has narrowed to its smallest gap since March 2005, or almost 20 years.

Investors may be anxious with potential short-term volatility on the horizon. But opportunities do exist in the fixed income space.

Rate cuts can produce a macroeconomic environment conducive to corporate bonds, allowing companies to borrow more money at lower rates. This could see more investors move into corporate bonds for greater yield opportunities.

Despite the heavy volatility during the month of August, ETFs saw a record number of inflows. This includes bond-focused funds, which are offering opportunities in corporate debt.

The closing gap in credit spreads after the August 5 sell-off is bringing corporate bonds back into the spotlight. Those looking for an intermediate bond ETF with yield opportunities and a muted credit risk profile should take a closer look at the Vanguard Interim-Term Corporate Bond ETF (VCIT).

Whether it's due to a correction or potential recession, the stock market is certainly experiencing a heavy dosage of volatility. Given this, it's an ideal time to add bonds, especially if they are poised to outperform stocks over the next 10 years.