In order to get a higher yield from Treasuries, fixed income investors need to stretch further on the yield curve. Such a strategy is possible with the Vanguard Extended Duration Treasury Index Fund. AND F Actions (VED ).
According to the fund description, VED seeks to track the performance of an index of zero coupon extended duration US Treasury securities. The fund uses an index investment approach designed to replicate the performance of the Bloomberg Barclays US Treasury BANDS 20-30 years Equal By Bond Index.
This index includes zero coupon U.S. Treasury securities (Treasury BANDS), which are backed by the full confidence and credit of the U.S. government, with maturities ranging from 20 to 30 years. The fund invests by sampling the index. At least 80% of its assets will be invested in US Treasury securities held in the index.
Highlights of VED:
- Seeks to track performance of US Treasury Bloomberg Barclays BANDS Index of nominal bonds equal to 20-30 years.
- Is passively managed using index sampling.
- Provides current income with high credit quality.
One of the benefits of adding treasury bills is their safe haven status.
“This AND F offers exposure to long-term treasury bills, an asset class which is generally safe in terms of credit risk but which can offer attractive return potential by exposing investors to interest rate risk ”, a AND F Database analysis said. “The underlying index of this fund is made up of Treasury securities BANDS with maturities ranging from 20 to 30 years, a unique approach to accessing long-term public debt.
Additionally, VED comes with a low expense ratio of just 0.07%.
“VED will exhibit a high level of sensitivity to changes in interest rates, rising when rates rise but collapsing on speculation that the Fed would raise rates, ”the analysis adds. “For investors who believe that rates will remain stable or decrease, VED can be an attractive source of return, as the yields delivered are significantly higher than those of short-term treasury bills. “
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