Investment outlooks and changing markets
Market changes can be reflected in your clients’ unique needs and risk tolerances. Discover today’s fixed income outlook and ways to strategically align portfolios for your clients.
INVESTMENT OUTLOOK
Fixed income: A ballast in volatile markets
The markets and economy have been volatile in recent months. Businesses, investors, and the market are evaluating what impacts tariff policy changes may bring.
Your clients want to know how the unpredictable market may impact their portfolios and future investments. This is a vital time to guide them with insights from market experts, but it’s also a strategic time to reassess their current risk tolerance and how their asset allocations align with market volatility and their goals. In our webinar, Fixed Income Outlook for 2025, our experts share insights to help you navigate these times.
In our on-demand replay, fixed income experts, Chris Alwine, Vanguard head of credit, and Roger Hallam, Vanguard head of rates, sat down with Rebecca Venter, senior fixed income product manager, and unpacked some of the latest market movement. They discuss market and economy changes driven by tariffs, the economic outlook, and how Vanguard is positioning its active portfolios.
Here are some key takeaways from the session:
Bond fundamentals remain strong
The bond market has experienced significant volatility, driven by shifting tariff policies and economic uncertainty, but fundamentals remain strong. The team at Vanguard concluded that while the market is dynamic, the fundamentals remain strong suggesting the economy could still avoid a recession. For clients more concerned about volatility and the possible reduction of principal, it’s important to diversify risk. Consider products like VGLT, Vanguard Long-Term Treasury ETF, and VCRB, Core Bond ETF.
Stagflationary risks from tariffs
Many continue to worry about an impending recession, but despite tariffs creating a greater risk for higher inflation and slower growth, the current economic impact remains manageable. Depending on where tariff negotiations land for key countries, several potential economic scenarios could arise.
"The longer the uncertainty goes on, the greater the risks of an economic slowdown," Roger Hallam said. "We put that about three to four months, and it becomes highly disruptive to businesses."
The Federal Reserve’s next move
In uncertain economic times, all eyes are on the Federal Reserve. The Fed faces a challenging situation, with its dual mandate of price stability and maximum employment increasingly at odds. In response to these conflicting signals, the Fed is likely to take a cautious approach. Helping your clients find the right bond investments will help them diversify stocks when they need it the most. Explore our three conceptual portfolios below that guide you to the best bond investments depending on your client’s risk tolerance and overarching investment goals.
The U.S. dollar, emerging markets, and vulnerable sectors
Despite recent declines, the U.S. dollar remains the principal reserve currency. Emerging markets present attractive opportunities, but certain sectors are vulnerable, such as consumer discretionary, retail, auto, basic materials, chemicals, metals, and mining, as well as capital goods. Dig in deeper to the fixed income outlook in our replay and explore Vanguard’s active and index fixed income solutions below to help better position your clients in today’s market uncertainty.
Watch for expert insights
High-quality bonds are attractive options for diversification and ballast. Watch Vanguard’s head of credit, Chris Alwine explain.
Fixed income solutions tailored to client needs
The way your clients process changing market conditions reflects specific needs, risk tolerances, and goals that also guide how you construct the fixed income portion of their individual portfolios. We’ve assembled these conceptual portfolios to guide how you align the appropriate fixed income opportunity with the power of behavioral coaching. Consider them as a launching point for how you can customize fixed income holdings according to your clients’ unique objectives.
Diversify risk
Concerned about volatility and reduction of principal.
Total return
Comfortable with higher volatility in exchange for higher potential returns.
Income
Rely on bond income to meet spending needs.
Bonds to diversify risk
Client type:
They’re concerned about volatility and don’t want to risk spending down principal.
Action:
Pair high-quality bonds with traditional equities or separately managed accounts.
Investments to consider:
- VCRB Core Bond ETF
- VGSH Short-Term Treasury ETF
- VGLT Vanguard Long-Term Treasury ETF
- BNDX Total International Bond ETF
- VGIT Intermediate-Term Treasury ETF
- VMBS Mortgage-Backed Securities ETF
Behavioral coaching takeaways:
- Address client anxieties by emphasizing that high-quality fixed income investments such as Treasury, core bond, and intermediate-term corporate bond fund investments often move in the opposite direction of equities when the stock market sells off.
- Reassure clients that their goals can still be within reach because they prepared this way for equity market downturn scenarios.
Bonds seeking total return
Client type:
They’re comfortable with higher volatility if it means an opportunity for higher potential returns.
Action:
Pursue a balance between exposure to higher quality Treasury and Core bonds and lower quality high-yield bonds and combine with other asset classes for diversified return.
Investments to consider:
- VPLS Core-Plus Bond ETF
- VGSH Short-Term Treasury ETF
- VGLT Long-Term Treasury ETF
- VCIT Intermediate-Term Corporate Bond ETF
- VWEAX High-Yield Corporate Fund
- VEGBX Emerging Markets Bond
- BNDX Total International Bond ETF
Behavioral coaching takeaways:
- When clients’ portfolios are well-diversified, clients are more likely to have exposure to whatever is performing well.
- Any impact from exposure to poorer-performing asset classes will be limited and offset by other assets performing well.
Bonds for income
Client type:
They need bond income to meet their spending needs.
Action:
Allocate to bonds with greater credit exposure. This can include diversified active bond funds, active/passive ones, high-yield, and active multi-sector, among others.
Investments to consider:
- VMSAX Multi-Sector Income Bond Fund
- VCSH Short-Term Corporate Bond ETF
- VEGBX Emerging Markets Bond Fund
- VWEAX High-Yield Corporate Fund
- BND Total Bond Market ETF
Behavioral coaching takeaways:
- Having a steady income stream in the portfolio can relieve the pressure of having to sell equities to fund spending needs.
- Emphasize to clients that current rate levels are relatively high, both historically and compared against the current dividend yield for equities.
Vanguard fixed income investments
- Help create portfolio stability, income, and more for your clients. Check out our full Vanguard fixed income lineup.
- Explore active municipal and active taxable bond funds, as well as our active ETFs.
- Discover how our low-cost advantage helps enable outperformance over time, without undue risk.
Have questions about fixed income? Contact us.
Disclosures and footnotes
For more information about Vanguard funds or Vanguard ETFs, visit vanguard.com or call 800-997-2798 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information [[about a fund]] are contained in the prospectus; read and consider it carefully before investing.
Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.
All investing is subject to risk, including possible loss of principal. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
Diversification does not ensure a profit or protect against a loss.
Bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer's ability to make such payments will cause the price of that bond to decline.
Investments in bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk.
U.S. government backing of Treasury or agency securities applies only to the underlying securities and does not prevent share-price fluctuations. Unlike stocks and bonds, U.S. Treasury bills are guaranteed as to the timely payment of principal and interest.
Past performance is no guarantee of future results.