Investors looking for safety from volatile equity markets have piled into bond exchange traded funds.
Taxable-bond ETFs have seen net inflows of nearly $28 billion year to date, according to Morningstar data through September. This is the biggest ETF intake for any asset class. [Skittish Investors Flock to Bond ETFs]
“In the U.S., exchange traded products gathered $4.4 billion in net new assets in September driven primarily by inflows of $5.8 billion into fixed income ETPs reflecting the ’risk-off’ trade,” according to a recent BlackRock update. “Equity ETPs experienced outflows for the second consecutive month, subtracting $1.2 billion in September and $2.3 billion in August.”
Conservative investors like the income and relative stability of bonds. However, Treasury yields are extremely low by historical standards. Bond yields and prices move in opposite directions.
Bond ETFs have low fees and transparency, and the wide variety available in the market allows investors to create a customized approach to fixed-income investing.
Bond ETFs trade during the day like individual securities. The bonds in the portfolio pay interest to investors similar to a stock dividend. [ETF Moves to Help Recession Proof Your Portfolio]
Here are some of the major categories of bonds and ETFs that track them:
- Safety: Treasury bonds and investment-grade corporate bonds are considered among the safest. These bonds tend to do well in a down economy because of their steady, safe nature. But the low risk does come with a lower yield. The iShares Barclays 20+ Year Treasury Bond (NYSEArca: TLT) yields 3.4%, and has about $3.25 billion in assets. The iShares iBoxx $ Investment Grade Corporate Bond (NYSEArca: LQD) boasts $14.75 billion in assets and has a yield of 4.6%.
- Higher Yields: For those investors who prefer a more aggressive approach, and can stomach a bit more risk, emerging market bond ETFs could be a match. WisdomTree Emerging Markets Local Debt (NYSEArca: ELD) yields 4.54% and has about $1.42 billion in assets. [These ETFs earn A+ Ratings From The Street]
- Even Higher Yields: The bravest investors can look to junk bonds. SPDR Barclays Capital High Yield Bond ETF (NYSEArca: JNK) has about $7.4 billion in assets, and the fund yields over 8%.
SPDR Barclays Capital High Yield Bond
Tisha Guerrero contributed to this article.