Exchange traded funds (ETFs) have proliferated into every corner of the market, except one-bonds. Investors who want a fixed-income ETF only have a few choices, ironically, since ETFs are available for every niche sector down to cancer or water. It’s all starting to change, because firms like Barclays, Vanguard, State Street, Bear Stearns and Ameristock are answering the need, according to regulatory filings. Rob Wherry for The Wall Street Journal reports there is a total of $23 billion in the current 20 bond ETFs offered by Barclays and Vanguard. These ETFs specialize in corporate bonds in different grades of credit quality, Treasury’s of varying maturity and mortgage-backed securities.
It’s important to know what you are buying, no matter the investment, and the same is true for bond ETFs. While they do track an index, the holdings can be a bit different. Take the Lehman Brothers U.S. Aggregate Bond Index, which includes 8,800 bonds, this is a lot more individual securities than a typical stock index. While the Vanguard Total Bond Market (BND) and iShares Lehman Aggregate Bond (AGG) track the index, they don’t hold 8,800 bonds. In fact, BND holds 2,581 and AGG holds 158.
Before choosing any ETF for your portfolio, know what you are buying as well as how it fits in your portfolio and goals.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.