Exchange-traded funds (ETFs) are sort of like ice cream: There's a flavor that should appeal to every person.
I think that's especially true with the Vanguard family of funds. Vanguard offers 93 ETFs. Income investors should be able to find several in the group that they like. If you're looking for juicy yields, a few funds especially stand out. Here are the three highest-yielding Vanguard ETFs.
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1. Vanguard Emerging Markets Government Bond ETF
The Vanguard Emerging Markets Government Bond ETF (VWOB -0.14%) easily ranks at the top of the list. This ETF's 30-day SEC yield (the net investment income per share over a 30-day period, divided by the maximum share price on the last day of the period) is a lofty 6.46%.
Like many Vanguard ETFs, the Vanguard Emerging Markets Government Bond ETF attempts to track the performance of an index -- in this case, the Bloomberg USD Emerging Markets Government RIC Capped Index. As you can probably guess from their names, this ETF and its associated index focus on bonds issued by governments in emerging markets.
The Vanguard Emerging Markets Government Bond ETF owns 781 bonds. Roughly 96.7% of these bonds were issued by the governments of emerging nations such as Argentina and Mexico. The remaining bonds were issued by governments in Europe, the Middle East, North America, and other countries.
This Vanguard ETF has delivered a total return of 7.62% over the last 12 months. However, that's higher than normal. Since its inception on May 31, 2013, the fund's average annual total return is 3.02%. Fees aren't a big problem with this ETF, though. Its annual expense ratio is only 0.15%.
2. Vanguard Long-Term Corporate Bond ETF
The Vanguard Long-Term Corporate Bond ETF (VCLT -0.30%) offers a 30-day SEC yield of 5.98%. That's enough to make it the second-highest-yielding ETF in the Vanguard lineup.
This Vanguard fund invests primarily in long-term, investment-grade corporate bonds. It currently owns 2,604 bonds with an average effective maturity. The Vanguard Long-Term Corporate Bond ETF targets a dollar-weighted average maturity of between 10 and 25 years.
Many of the corporate bonds in this Vanguard ETF's portfolio have attractive coupon rates. For example, one bond issued by Goldman Sachs has a coupon rate of 6.75%. However, some bonds have lower coupon rates, such as the 2.525% rate for a bond in the portfolio issued by Microsoft.
The total return of the Vanguard Long-Term Corporate Bond ETF over the last 12 months is 2.68%. That's below the average total return since the fund's inception on Nov. 19, 2009, of 4.45%. One plus for this ETF, though, is that it has an exceptionally low annual expense ratio of 0.03%.
3. Vanguard Long-Term Bond ETF
Keeping with the bond trend we have going, the third-highest yield in the Vanguard family belongs to the Vanguard Long-Term Bond ETF (BLV -0.10%). This fund offers a 30-day SEC yield of 5.47%.
The Vanguard Long-Term Bond ETF attempts to track the performance of the Bloomberg U.S. Long Government/Credit Float Adjusted Index. It provides diversified exposure to the U.S. bond market with a focus on long-term, investment-grade bonds.
This ETF's portfolio includes 3,060 bonds with an average effective maturity of 22.2 years. Over half (51.9%) of these bonds were issued by the U.S. government. Most of the others are corporate bonds.
The Vanguard fund's total return over the last 12 months is only 1.64%. However, since its inception on April 3, 2007, the ETF has delivered an average annual total return of 4.09%. Its annual expense ratio of 0.03% is also very low.
Are these Vanguard ETFs smart picks for income investors?
I think these three Vanguard ETFs are smart picks for income investors. They come with some risks to know about, though. For example, the Vanguard Emerging Markets Government Bond ETF could have a higher risk of default than some bond funds. And all three ETFs could experience volatility with interest rate swings.
Also, as we have seen, these Vanguard funds don't always deliver great total returns. But for investors seeking income, the Vanguard Emerging Markets Government Bond ETF, the Vanguard Long-Term Corporate Bond ETF, and the Vanguard Long-Term Bond ETF could be good additions to a diversified portfolio.
