Looking for income? This Vanguard ETF pays an ultra-high yield of over 6%.

Vanguard exchange-traded funds (ETFs) are like ice cream—there’s a flavor for everyone. Growth investors have several excellent options in the Vanguard family of funds, as do value investors.

Looking for income? Vanguard has you covered, too. While there are several good alternatives for income investors, one Vanguard ETF in particular stands out.

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A unique Vanguard ETF

Vanguard trades more than 20 bond ETFs, but only one of them focuses on bonds issued by the governments of emerging countries — Vanguard Emerging Markets Government Bond ETF (VWOB -0.11%).

This Vanguard ETF seeks to track performance Bloomberg USD emerging markets government RIC capped index. Its focus is on US dollar-denominated debt issued by government-owned, government-guaranteed and government-sponsored agencies. RIC in its name stands for “regulated investment companies,” a reference to the requirement that the index meet the diversification guidelines that any fund must meet to qualify as a regulated investment company.

The Vanguard Emerging Markets Government Bond ETF currently holds 733 bonds, which is slightly higher than the 721 bonds in Bloomberg USD emerging markets government RIC capped index. The latter index points out that although the ETF attempts to track the performance of the index, it will not always match it exactly. The average effective maturity of bond ETFs is 12.1 years.

Almost all of the bonds (97.2%) held by the Vanguard ETF were issued by government agencies in emerging markets. Another 2.2% of bonds were issued by European governments, with the rest issued in the Middle East or elsewhere in the world.

Advantages 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 return is historically high for the fund. Since its inception in May 2013, the Vanguard ETF’s return has typically been below 5%.

There’s also another advantage with this ETF for income investors — it pays distributions monthly. Distributions are usually paid on the first three to five days of each month to all fund owners beginning on the first of the month.

You won’t need a lot of money to get started with this Vanguard ETF. The minimum investment is technically just $1, although its share price is currently hovering around $65.

Vanguard is known for its low-cost funds. The Vanguard Emerging Markets Government Bond ETF does not disappoint in this regard. The annual expense ratio is 0.2%, well below the average expense ratio of 0.99% for similar funds.

Disadvantages of this Vanguard ETF

No ETF is perfect, however. One downside to this Vanguard ETF is that, unlike U.S.-issued municipal bonds, 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, however, carries more risk than many other Vanguard bond ETFs. Government agency bonds in emerging markets are likely to be much more volatile and less liquid than bonds issued by governments of developed countries such as the US

Also, while this Vanguard ETF pays a juicy distribution, its performance tends to be poor. As of September 30, 2024, the fund’s net asset value (NAV) is up just 8% year-to-date. Since the ETF’s inception on May 31, 2013, its NAV has increased by an average of just 3.09% per year.

Because of these drawbacks, the Vanguard Emerging Markets Government Bond ETF is not a good choice for growth investors or risk-averse income investors. But for aggressive income investors, this Vanguard ETF could be an ideal addition to their portfolios.