Just because the early momentum favors equities, that doesn’t mean there’s no place for bond ETFs in a strong portfolio. Three iShares bond ETFs are seeing strong inflows to start the new year.
At over $260 million in inflows in the early going, the iShares TIPS Bond ETF (TIP) is seeing strong interest from buyers. Rounding out the top three is the iShares Short-Term Corporate Bond ETF (IGSB) at over $90 million in inflows YTD and the iShares National Muni Bond ETF (NYSEArca: MUB) at just over $80 million.
A Bond ETF for All Sorts of Scenarios
Here’s a quick primer on how the three ETFs might fit into your bond portfolio:
- TIP: seeks to track the investment results of Bloomberg Barclays U.S. Treasury Inflation Protected Securities (TIPS) Index (Series-L) which composed of inflation-protected U.S. Treasury bonds. While the Federal Reserve appears unflinching when it comes to its stance to keep interest rates low, what will it do if inflation starts to rise? With the increased flows into TIPS to start 2021, investors and traders alike might be sensing that a healing economy will translate into higher inflation in the new year.
- IGSB: With its low 0.06% expense ratio, IGSB seeks to track the investment results of the ICE BofA 1-5 Year US Corporate Index. The fund generally invests at least 90% of its assets in securities of the underlying index. The underlying index measures the performance of investment-grade corporate bonds of both U.S. and non-U.S. issuers that are U.S. dollar-denominated and publicly issued in the U.S. domestic market and have a remaining maturity of greater than or equal to one year and less than five years. Getting corporate bond exposure in the short-term horizon gives investors the ability to obtain yield, but minimize duration risk.
- MUB: seeks to track the investment results of the S&P National AMT-Free Municipal Bond IndexTM. The fund generally will invest at least 90% of its assets in the component securities of the underlying index and may invest up to 10% of its assets in certain futures, options and swap contracts, cash and cash equivalents. The index measures the performance of the investment-grade segment of the U.S. municipal bond market. Municipal bonds give debt market investors an extra layer of safety given that local government debt typically has a lower rate of default compared to corporate bonds.
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