Bond ETFs for Cost-Conscious Investors

The November jobs report, revealed Friday, stoked speculation that the Federal Reserve is on pace to raise interest rates in the first half of 2015.

Even if data remains constructive enough to support a mid-2015 Fed rate hike, that does not mean longer-dated bond exchange traded funds will be imperiled. Nor does a nudge higher for short-term rates mean investors flee bond ETFs, plenty of which are among this year’s top asset gatherers across all asset classes.

As just one example, inflows to bond ETFs topped $17.4 billion in October, besting the previous monthly inflows record of $17 billion set in February.

Investors, particularly at the institutional level, have flocked to bond ETFs this year and that trend is expected to continue in 2015. In its 2014 U.S. Institutional ETF Usage Report published last week, BlackRock, the world’s largest asset manager and parent company of iShares, the world’s largest ETF issuer, noted international equity and fixed income ETFs are expected to be major drivers of ETF growth in 2015. [BlackRock Says Institutional Use of ETFs on the Rise]

There are 1662 U.S.-listed ETFs with an average 0.61% expense ratio, and 285 bond ETFs with an average 0.41% expense ratio, according to XTF data.

The U.S. fixed income ETF industry is on track to hit $300 billion in assets under management for the first time this year and cost-conscious investors can participate in that growth while generating income with some of the following low-fee ETFs.