The Vanguard Long-Term Bond ETF (NYSEArca: BLV) has added nearly $759 million in new assets this year, indicating that some advisors and investors are betting the Federal Reserve might have to delay raising interest rates even longer, which could be a boon for longer duration fixed income exchange traded funds.
BLV tracks the Barclays U.S. Long Government/Credit Float Adjusted Index, to exposure to a range of investment-grade government and corporate debt securities. BLV has a 14.7 year duration and a 4.08% 30-day SEC yield. BLV is down 3.1% year-to-date but generated an average annualized return of 6.1% over the past five years. The ETF also comes with a cheap 0.10% expense ratio.
That expense ratio is well below that of active fixed income mutual funds and BLV is likely to deliver better performance as recent data suggest some active bond managers are struggling to beat their benchmarks.
Active managers, who had a finger on the market pulse, could have diminished their bond fund durations to diminish the risk of rising rates. Meanwhile, index-based ETFs with a set target strategy cannot shift duration exposure to limit interest rate risks.
However, according to S&P Dow Jones Index Versus Active (SPIVA) research, over the one-year period ended June 2015, nine in ten active fixed-income mutual funds underperformed the Barclays benchmark index.