ETF Investors Should Ease Up on Equities, Look to Fixed Income


ETF investors interested in fixed-income exposure have a number of broad options available. For instance, the iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG) is one of the largest, cheapest and most liquid investment that tracks the widely observed Barclays US Aggregate Bond Index. AGG’s underlying index includes a broad mix of fixed-rate, investment-grade government, corporate and securitized bonds that are weighted by float-adjusted market capitalization. Consequently, the portfolio tilts towards issuers with the largest debt, so the government and securitized bonds make up the largest chunk of the aggregate bond ETF’s holdings. AGG has a 1.89% 30-day SEC yield.

Related: Jitters Permeate the ETF Bond Market

The Vanguard Total Bond Market ETF (NYSEArca: BND) provides another option to gain exposure to the Barclays U.S. Aggregate Bond Index. BND is the largest ETF to track the benchmark, but the fund provider excludes securities held by the Fed. BND has a 2.04% 30-day SEC yield.

The Schwab U.S. Aggregate Bond ETF (NYSEArca: SCHZ), which also tracks the same index, is the cheapest option available, with a 0.05% expense ratio. However, SCHZ is smaller than its competitors. SCHZ has a 2.09% 30-day SEC yield.

Related: 17 TIPS ETFs to Hedge Against Inflation

For TIPS exposure, investors can look at options like the iShares TIPS Bond ETF (NYSEArca: TIP), Schwab U.S. TIPS (NYSEArca: SCHP) and SPDR Barclays TIPS ETF (NYSEArca: IPE). TIPS returns are affected by interest-rate risk as well as changes in the principal value when the Consumer Price Index moves. TIPS will adjust their principal value upward in response to a higher CPI, but the reverse occurs during periods of deflation.

For more information on the fixed-income market, visit our bond ETFs category.