Executive Summary: Vanguard’s specialty bond funds offer opportunities beyond core investment-grade bonds—but with added risks. This guide breaks down top picks, key risks and when to buy, hold, or pass. From junk bonds to emerging markets, find out which funds may deserve a spot in your portfolio—and which don’t.
The bond market is massive—over $140 trillion in size—yet when most people talk about the bond market, they’re talking about less than a quarter of that. Consider that the bonds tracked by Total Bond Market Index (VBTLX) “only” account for around $30 trillion of that $140 trillion.
Last week, I analyzed Vanguard’s core, investment-grade bond funds—see here. And while I don’t think your portfolios need to incorporate every corner of that $140 trillion market, some opportunities arise beyond the U.S.’s core!
With the exception of its two mortgage-backed bond funds, GNMA (VFIIX) and Mortgage-Backed Securities Index (VMBSX), Vanguard’s specialty bond funds target securities you won’t find in Total Bond Market Index’s sprawling portfolio. These “other” bonds can offer attractive returns at times and complement your core bond holdings, but they also have their own characteristics and quirks that you need to understand before buying in.
So, let’s explore Vanguard’s specialty and foreign bond funds.