Looking for Income? This Vanguard ETF Pays an Ultra-High Yield of Over 6%.

Source The Motley Fool

Vanguard exchange-traded funds (ETFs) are sort of like ice cream -- there's a flavor for everyone. Growth investors have multiple great options in the Vanguard family of funds, as do value investors.

Are you looking for income? Vanguard has you covered, too. While there are several good alternatives for income investors, one Vanguard ETF especially stands out.

A smiling person with hands behind head sitting in front of a laptop.

Image source: Getty Images.

A one-of-a-kind Vanguard ETF

Vanguard markets over 20 bond ETFs, but only one of them focuses on bonds issued by the governments of emerging nations -- the Vanguard Emerging Markets Government Bond ETF (NASDAQ: VWOB).

This Vanguard ETF attempts to track the performance of the Bloomberg USD Emerging Markets Government RIC Capped index. Its focus is on debt denominated in U.S. dollars issued by government-owned, government-guaranteed, and government-sponsored agencies. The RIC in its name stands for "regulated investment company," a reference to the requirement that the index meets the diversification guidelines any fund must adhere to in order to qualify as a regulated investment company.

The Vanguard Emerging Markets Government Bond ETF currently owns 733 bonds, which is a little higher than the 721 bonds in the Bloomberg USD Emerging Markets Government RIC Capped index. The latter index underscores that while the ETF attempts to track the index's performance, it won't always exactly match it. The average effective maturity of the ETF's bonds is 12.1 years.

Nearly all of the bonds (97.2%) held by the Vanguard ETF were issued by government agencies in emerging markets. Another 2.2% of the bonds were issued by European governments, with the remaining ones issued in the Middle East or other parts of the world.

Pros of the Vanguard Emerging Markets Government Bond ETF

For income investors, the main plus for the Vanguard Emerging Markets Government Bond ETF is its ultra-high yield of 6.07%. This yield is high historically for the fund. Since its inception in May 2013, the Vanguard ETF's yield has typically been below 5%.

There's also another perk with this ETF for income investors -- it pays distributions monthly. Distributions are usually paid within the first three to five days each month to all owners of the fund as of the first of the month.

You won't need much money to get started with this Vanguard ETF. The minimum investment is technically only $1, although its share price currently hovers around $65.

Vanguard is known for its low-cost funds. The Vanguard Emerging Markets Government Bond ETF doesn't disappoint on this front. Its annual expense ratio is 0.2%, well below the average expense ratio of 0.99% for similar funds.

Cons of this Vanguard ETF

No ETF is perfect, though. One downside to this Vanguard ETF is that, unlike municipal bonds issued in the U.S., the bonds in the fund's portfolio are taxable. However, investors can mitigate this by holding the ETF in tax-advantaged accounts, such as IRAs and 401(k) plans.

Any investment vehicle will be subject to some risk. The Vanguard Emerging Markets Government Bond ETF, though, comes with greater risks than many other Vanguard bond ETFs. The bonds of government agencies in emerging markets are likely to be significantly more volatile and less liquid than bonds issued by the governments of developed nations, such as the U.S.

Also, while this Vanguard ETF pays a juicy distribution, its performance tends to be lackluster. As of Sept. 30, 2024, the fund's net asset value (NAV) has increased only 8% year to date. Since the ETF's inception on May 31, 2013, its NAV has risen by an average of only 3.09% per year.

Because of these negatives, the Vanguard Emerging Markets Government Bond ETF isn't a good pick for growth investors or risk-averse income investors. But for aggressive income investors, this Vanguard ETF could be an ideal addition to their portfolios.

Should you invest $1,000 in Vanguard Emerging Markets Government Bond ETF right now?

Before you buy stock in Vanguard Emerging Markets Government Bond ETF, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vanguard Emerging Markets Government Bond ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $812,893!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of October 7, 2024

Keith Speights 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.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
placeholder
Swiss exports crash 36% in the first month of Trump tariffsSwiss exports dropped by 36% in the first month after Trump imposed tariffs.
Author  Cryptopolitan
9 hours ago
Swiss exports dropped by 36% in the first month after Trump imposed tariffs.
placeholder
EUR/JPY appreciates above 163.00 with the Yen retreating across the boardThe Euro is trading higher for the second consecutive day, still fuelled by the delay of Trump’s deadline to avoid 50% tariffs in the US, while the Yen declines alongside super long-term Japanese yields.
Author  FXStreet
9 hours ago
The Euro is trading higher for the second consecutive day, still fuelled by the delay of Trump’s deadline to avoid 50% tariffs in the US, while the Yen declines alongside super long-term Japanese yields.
placeholder
Gold extends correction amidst trade optimism, stronger US DollarGold (XAU/USD) price extends correction, sliding below the $3,300 mark at the time of writing on Tuesday amid improving risk-on mood and a stronger US Dollar (USD). 
Author  FXStreet
9 hours ago
Gold (XAU/USD) price extends correction, sliding below the $3,300 mark at the time of writing on Tuesday amid improving risk-on mood and a stronger US Dollar (USD). 
placeholder
Bitcoin (BTC) To Continue Price Discovery Rally If It Holds These Levels – AnalystAs Bitcoin (BTC) attempts to turn the $110,000 resistance into support, some analysts believe its price discovery rally has just started, forecasting new highs for the flagship crypto.
Author  NewsBTC
10 hours ago
As Bitcoin (BTC) attempts to turn the $110,000 resistance into support, some analysts believe its price discovery rally has just started, forecasting new highs for the flagship crypto.
placeholder
Forex Today: US Dollar rebounds after long weekend, focus shifts to mid-tier US dataThe US Dollar (USD) benefits from the improving risk mood early Tuesday, while trading conditions normalize following a three-day weekend in the US.
Author  FXStreet
11 hours ago
The US Dollar (USD) benefits from the improving risk mood early Tuesday, while trading conditions normalize following a three-day weekend in the US.
goTop
quote