As investors continue to watch the dollar fall in value and fear inflation, bond exchange traded funds (ETFs) have been the beneficiaries of this economic situation.

John Spence of Market Watch said that taxable bond ETFs brought in the biggest gains in assets in September. Year-to-date,  taxable bond ETFs have brought in about $26.7 billion of new assets, which makes it the most popular ETF category so far in 2009. (How to use ETFs to diversify away from the dollar).

Not all bond ETFs are created the same.  The iShares Barclays TIPs Bond ETF (NYSEArca: TIP) has been one of the most popular, doubling in size to boast nearly $16 billion in assets.  What makes TIPS so attractive is that they enable investors to hedge against inflation because their returns are based on the rate of inflation. (How TIPS work).

Other TIPS ETFs include:

  • PIMCO Broad U.S. TIPS (NYSEArca: TIPZ)
  • PIMCO 15+ Year U.S. TIPS (NYSEArca: LTPZ)
  • PIMCO 1-5 Year U.S. TIPS (NYSEArca: STPZ)
  • SPDR Barclays Capital TIPS (NYSEArca: IPE)

Another class of bond ETFs that has seen nice growth is investment-grade corporate bond ETFs.  Take a look at the iShares iBoxx Investment Grade Corporate Bond Fund (NYSEArca: LQD), which has about $13 billion in assets, a yield of 5.3% and is up 8.3% year-to-date.

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