Investors are finding the low costs of bond exchange traded funds even more attractive because they don’t want fees to cut into returns in a low-yield environment for fixed-income markets.

“With interest rates so low, what you pay in fee is particularly important,” said Kathy Jones, fixed income strategist at Charles Schwab, in a Dow Jones Newswires report.

Although the first ETFs launched in the 1990s tracked stock indexes and most of the assets reside in equity funds, bond ETFs have been growing in popularity. They allow investors to buy a basket of bonds and most charge razor-thin fees. [ETF Spotlight: Corporate Bonds]

For example, Vanguard Total Bond Market ETF (NYSEArca: BND) lets investors buy a portfolio of more than 3,000 U.S. investment-grade bonds with one trade. It has an expense ratio of 0.11%, much lower than comparable mutual funds. [Best of Both Worlds in High-Yield Bond ETFs]

“Bond ETFs are still a tiny part of the fixed-income market, with $178 billion invested in U.S.-based funds at the end of 2011, compared with $2.5 trillion in fixed-income mutual funds. However, momentum is swinging to ETFs,” Dow Jones reported. “Last year, bond ETFs saw inflows of $43.9 billion, up 68% from a year earlier. Comparable mutual fund inflows dropped by nearly half to $120 billion.”

Vanguard Total Bond Market

The opinions and forecasts expressed herein are solely those of John Spence, 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.