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Vanguard Long-Term Bond ETF: Possible Momentum


  • BLV is a bond ETF that closely tracks the Bloomberg Barclays U.S. Long Government/Credit Float Adjusted Index.
  • Almost 45% of its holdings comprise of long-term US Treasuries with the remaining exposure distributed across different investment-grade bonds.
  • Historical returns have been high on account of falling interest rates.
  • I do much more than just articles at The Lead-Lag Report: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

"The individual investor should act consistently as an investor and not as a speculator." - Benjamin Graham

Looking at the performance of bond ETFs in the past month has presented an interesting investment opportunity. The share prices of most of these ETFs have been surging towards their 52-week highs. While the Federal Reserve (Fed) rate cuts have been a boon to fixed-income investments, ETFs like the Vanguard Long-Term Bond ETF (NYSEARCA:BLV) present investors with an opportunity. Many argue that without any further rate cuts, the appreciation of bond ETFs may be limited. Also, the ETFs are no longer available at deep discounts to their net asset values. While this may be right to some extent, other features of this fund make it worthwhile for further consideration.

A Stock of Quality Bonds

The fund parks most of its funds in Treasury bonds and a significant portion of it in investment-grade corporates.

Source: Seeking Alpha

Source: Vanguard

The fund replicates the Bloomberg Barclays U.S. Long Government/Credit Bond Index and has returns that are almost equal to the index. This suggests that the fund has been able to replicate the index's performance to a great extent.

Source: Vanguard

The debt fund has been able to achieve substantial returns despite the risk being low while looking at the past returns in the ETF. A 10-year return of 8.04% with a portfolio comprising of high-quality bonds is a tempting proposition but can be challenging to achieve. Those are equity-like returns over the long run.

A significant part of the returns has been contributed by the fall in yields over the years with the move to quantitative easing and dropping of interest rates to rock bottom. It is widely understood that even when rates do rise, the new normal interest rate will be far lower than in the

This article was written by

Michael A. Gayed, CFA profile picture
Michael A. Gayed is portfolio manager, and author of five award-winning research papers on market anomalies and investing. He has a BS with a double major in Finance & Management from NYU Stern School of Business, and is a CFA Charterholder. Michael runs the investing group The Lead-Lag Report, focused on helping investors outperform in all market conditions. It offers a tactical, data-driven approach to investing, to achieve long-term success even in the face of uncertainty. With increasing market volatility, it's essential to understand risk-on/risk-off signals, seize high-yield opportunities, and leverage award-winning research to maximize returns. Learn More.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This writing is for informational purposes only and Lead-Lag Publishing, LLC undertakes no obligation to update this article even if the opinions expressed change. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services in any jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Lead-Lag Publishing, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (3)

rlopes profile picture
@Michael A. Gayed, CFA Any clues on why it's being crushed on the last days? Same for ZROZ and SPTL
James Bf profile picture
Rates are inching up on the long side but worry not too much as the Fed is now on a path of yield curve control. I would not be surprised to see the 10 year at 1% by year-end but retreating back to sub 0.5% by mid next year.
James Bf profile picture
I own BLV and wish I had increased my position when it was yielding just above 4% before rates started falling back to zero again. Now it is way to much rate risk unless going into negative rates is a certainty, atcwhich point this fund could be in for some massive capital gains. I am keeping my small position either way.
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