ETF Spotlight on Vanguard Short-Term Bond (BSV), part of a recurring series.

Assets: $1.7 billion

Objective: Seeks to track the performance of a market-weighted bond index with a short-term dollar-weighted average maturity, which is not expected to exceed three years on average.

How It Works

BSV holds 1,072 components with an average maturity of 2.8 years and an average quality of AA1/AA2. 56.3% of the bonds in the fund have a maturity of 1-3 years, while 40.5% have a maturity of 3-5 years. Bond ETFs can be a cost-effective way for investors who want fixed-income exposure to get it. Buying this number of bonds would become very expensive if one were to do it on an individual basis.

The Latest News

• Treasury bonds in the last year have seen an increase of investor interest, as market turmoil had them looking for safe havens. At one point, yields were so low investors were paying the government to hold their money.
• Much of this interest has led to speculation that the Treasury bond market is in a bubble, thanks to oversupply that could send prices south and yields through the roof.
• Larry Light for The Wall Street Journal notes that the rally may have petered out and investors may have to look elsewhere for decent returns.
• Since 1982, however, long-term government bonds have returned 8.5% annually vs. 9.2% annually for large-company stocks.
• Treasury bonds are generally known as being virtually “risk-free” because the government can print more money.
• If fiscal prudence returns, both stocks and bonds could benefit.

Tags: Bond ETFs, ETF 101, ETF Spotlight, Retirement, Treasury Bonds