What are Bond ETFs?
Bond Exchange-Traded Funds (ETFs) are fixed-income investments that follow corporate bonds or Treasuries. They are safe and predictable, as compared to stocks. If your portfolio is high-risk, bond ETFs balance it.
A single bond ETF could have hundreds of bonds under its belt, thus spreading risk, which is ultimately safer. With a bond ETF, you get a stable, diversified investment. You may diversify your bonds by investing in both U.S. and international bonds in a 70-30 proportion.
Bond ETFs are liquid. Unlike individual bonds, bond ETFs trade thousands of times throughout the day. In fact, individual bonds may not trade every day. This is the benefit of having numerous individual bonds in one basket.
Another benefit of bond ETFs is that they have reduced volatility compared to other investment options. They are less likely to change prices or movements at a sudden rate. Bond ETFs are less volatile because they are fixed-income investments.
The best bond ETFs in 2022
Vanguard Total Bond Market Index Fund ETF (BND)
Best perk: Diversification
This bond ETF trades under its ticker BND, which averages at $70.31. Below is other important information about the fund:
- Dividend yield of 2.75%, which paid $1.94 for each share in the past year. Dividends are paid monthly.
- It has close to 10,178 bonds.
- Daily volume of 4.975 million.
- Net assets of $271.09 billion.
- 0.03% expense ratio ($3 for every $10,000 invested).
The bond has its assets divided between U.S. government bonds (67%), AAA-rated corporate debt (3.8%), A.A.-rated debt (3%), A-rated debt (11.8%), BBB-rated debt (14.3%) and less than BBB-rated debt (0.1%).
The specific bonds it holds are spread out mostly in U.S. treasuries of various maturities. Other holdings include Abbott Laboratories, with a 4.9% coupon. These bonds have high yields, although less than a 2-year treasury.
iShares 20+ Year Treasury Bond ETF (TLT)
Best Perk: Stability
This ETF tracks the performance of government bonds, more specifically, long-term U.S. Treasury bonds. iShares prefers to track bonds at least 20 years old, with $300 million of outstanding value and no corporate debt exposure.
Any bond that tracks the U.S. government’s bonds is considered stable, as the U.S. economy is one of the strongest in the world. The information below is relevant to this ETF:
- Ticker: TLT; Price: $114.72
- Expense ratio: 0.15%
- Assets under management: $25 billion
- Expense ratio: 0.15%
- Volume: 29,057,098
- Number of holdings: 32
iShares Interest Rate Hedged High Yield Bond ETF (HYGH)
Best Perk: High-Yield
HYGH tracks high-yield corporate bonds that are U.S. dollar-denominated. At least 80% is invested in ensuring the portfolio is as diversified as possible. HYGH’s portfolio is distributed among bonds primarily in the BBB to BB-rated categories.
The fund’s top holdings are as follows:
- BlackRock Cash Funds Treasury SL Agency (XTSLA): 1.36%
- T-Mobile U.S., Inc.: 0.41%
- TransDigm, Inc.: 0.38%
- Centene Corporation: 0.32%
- AAdvantage Loyalty I.P. Ltd/ American Airlines Inc.: 0.31%
- Bausch Health Companies Inc.: 0.30%
- Caesars Entertainment Inc New: 0.30%
- Ford Motor Company: 0.30%
- CCO Holdings, LLC/CCO Holdings Capital Corp; 0.29%
- Teva Pharmaceutical Finance Netherlands III B.V.: 0.28%
Closing at $82.31 and having total net assets of $104.12, HYGH is an ETF to watch out for. To ensure our list is as comprehensive as possible, we have included exemplary-performing ETFs, with those on their way to the top.
HYGH has a yield of 5.11% and an expense ratio of 0.52%. Its 5-year average annualized return is 2.90%. Its underlying fund is HYG, and it owns many bonds. This diversification provides increased protection from risk.
HYGH is a high-yield ETF, so it avails more rewards in exchange for higher risks. Returns are benchmarked against the BlackRock Interest Rate Hedged High Yield Bond Index.
Vanguard Total International Bond ETF (BNDX)
Best Perk: International
With a market price of $47.87 and an expense ratio of 0.07%, BNDX measures the growth potential of an index based on the US dollar. This index in turn follows the performance of bonds that are not within the US. It also follows other currencies apart from the US dollar.
The fund is passively managed by Vanguard Fixed Income Group, with 37 years of management experience. This experience contributes to the bonds’ stability and progress. The Group uses proprietary software to track and trade.
BNDX has a capped exposure of 20% to any bond issuer. It also requires the bonds to have maturities of more than one year. It uses index sampling while remaining fully invested. The strategies used aim to minimize risk caused by uncertainty in exchange rates.
The following are some of the other key facts of BNDX:
- Current price: $47.70
- Net assets: $43.8 billion
- Turnover rate: 25.00%
- Holdings: 6,787
- Expense ratio: 0.7%
- Outstanding shares: 918,853,426.06
- Highest weighted zone: Europe (54.43%)
- Lowest weighted zone: Middle East (0.36%)
SPDR Bloomberg High Yield Bond ETF (JNK)
Best Perk: Liquid and cost-effective
Key facts include:
- Current price: $88.70
- Net assets: $8.51 billion
- Volume: 11,699,936
- Expense ratio: 0.4%
- Dividend: 5.12
- Dividend yield: 5.77%
- 52-week low: 86.28
- Fund Family: State Street Global Advisors Funds
- Category: Corporate high-yield
- Inception date: 12/4/2007
- Top Country: U.S. (84.32%)
- Top sector: Finance (28.74%)
- Top holding: TransDigm, Inc. (0.49%)
JNK tracks the performance of highly liquid, high-yield US-denominated corporate bonds. The particular index tracked is the Bloomberg High Yield Very Liquid Index, and the segment benchmark is the Bloomberg US Corporate High Yield Index.
JNK tracks taxable bonds with a maturity period of one and fifteen years. Its diversification spectrum is one of the broadest in the segment. It is rebalanced each last day of business every month.
Its holdings include finance, consumer services, technology services, energy materials, industrial services, health services, electronic technology, commercial services, communications and transportation.
It is managed by Global Fixed Income, Cash and Currency.
There are so many bond ETFs out there in the market. It is best to do adequate research before you select one.
