Rising exposure to BBB-rated securities

As you navigate the later stages of the economic cycle, credit quality may be an increasing concern as you look to manage your clients’ fixed income credit risk exposure.

We’ve heard that many advisors are particularly worried about the growth of today’s BBB investment-grade universe and whether those bonds will become the fallen angels of tomorrow.

U.S. investment-grade corporate bond ratings

U.S. investment-grade corporate bond ratings

Source: Bloomberg Barclays U.S. Corporate Investment Grade Index, as of September 30, 2018.

Three practical decisions might help reduce the anxiety you may be experiencing as you evaluate fixed income funds for your clients.

Pick a manager with a deep bench

A worldwide team of more than 175 experienced credit analysts, interest rate specialists, risk managers, and economists has the capacity to scour the vast universe of bond issuers to find those truly worthy of purchase.

Vanguard’s global analysts conduct deep, fundamental bottom-up credit analysis to form an independent opinion and rating of the issuer. Their recommendations, combined with our outlook on the global economy and central bank policy, inform our portfolio positioning.

Choose a nimble manager with sizable market access

While the bond market increasingly relies on electronic trading, the majority of trades are still performed on a “request for quote” basis. Our significant market presence gives us better access to bond dealers. Our ability to build strong relationships with dealer firms also helps us remain a nimble active bond manager.

Vanguard’s considerable scale gives us the access and leverage to provide timely, cost-efficient trade execution and preserve value for our clients. In addition, our team’s collaborative approach and focus on a select number of credit funds enable us to act quickly, especially in today’s challenging environment.

Select products that combine the advantages of both

If you want to limit your clients’ exposure to potential fallen angels, consider Vanguard’s suite of actively managed investment-grade credit bond funds.

Our short-, intermediate-, and long-term options are structurally higher in credit quality, containing less exposure to BBB and below securities than their peer group average*. In addition, each fund focuses on a diversified approach to the higher-quality credit market by investing across multiple credit sectors and limiting exposure to any one issuer. As a result, we expect them to hold up better than average corporate bond strategies during times of market stress.