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.
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.