Bond exchange traded funds (ETFs) have had a difficult time of late, as at times they’ve not traded at prices that match their underlying values - one of the main purposes of these funds.

For example, on Sept. 18, one of Barclay’s bond funds closed at a price 8.4% below the underlying value of its securities, and before that the ETF closed at a 3.2% discount, reports Ian Salisbury for The Wall Street Journal.

Investors who sold on any of those days may have taken a big cut, as some of these funds are acting like a closed-end fund (CEF) and drifting from their net asset values (NAVs). Wide swings from the NAV aren’t the norm for ETFs; in fact, the SPDR Trust, Series 1 (SPY) has missed its benchmark by more than 2% just twice in nearly 4,000 days of trading.

ETFs tracking investment-grade bonds such as corporate and municipal bonds saw trouble last week, as well.  Of around 50 domestic fixed-income ETFs traded in the United States, six missed their target by 5%, while 22 were off by 2%.

Experts advise that bond funds do hold promise of better tracking, and what has been going on recently is the exception rather than the rule.

Tags: S&P 500, SPY

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