In the quest for diversification, investors often look outside stock-based ETFs and holdings, to hedge market risk, or take advantage of economic events that might run parallel to the overall market. Fixed income exchange-traded funds (ETFs), whose shares are traded on major stock exchanges, are a special type of mutual fund designed to track the performance of a specific bond market index.
Designed and managed by a financial institution or financial information service, bond ETFs track the performance of the overall bond market or of a specific sector (government, corporate, or mortgage-backed), maturity range or credit quality within the larger market. The wide variety of bond ETFs offers investors the opportunity to achieve broad or targeted bond market exposure. Here are the 10 Best AAA grade fixed income ETF offerings for 2019.
1. iPath US Treasury 5-year Bull ETN (DFVL)
The iPath® US Treasury 5-year Bull ETN is designed to provide investors with exposure to the Barclays 5Y US Treasury Futures Targeted Exposure Index™. The ETNs are unsecured debt obligations of the issuer, Barclays Bank PLC, and are not, either directly or indirectly, an obligation of or guaranteed by any third party. Any payment to be made on the ETNs, including any payment at maturity or upon redemption, depends on the ability of Barclays Bank PLC to satisfy its obligations as they come due. An investment in the ETNs involves significant risks, including possible loss of principal, and may not be suitable for all investors.
The Barclays 5Y US Treasury Futures Targeted Exposure Index™(the “Index”) is designed to decrease in response to an increase in the 5-year Treasury note yields and to increase in response to a decrease in 5-year Treasury note yields. The Index targets a fixed level of sensitivity to changes in the yield of the current “cheapest-to-deliver” note underlying the relevant 5-year Treasury futures contract at a given point in time. The Index seeks to achieve its target sensitivity through the allocation of a weighting to the relevant 5-year Treasury futures contract, as traded on the Chicago Board of Trade, underlying the Index. Owning the ETNs is not the same as owning interests in the futures contracts comprising the Index or a security directly linked to the performance of the Index. The expense ratio for the fund is 0.75%.
2. iPath US Treasury 2-year Bull Exchange Traded Note (DTUL)
The iPath® US Treasury 2-year Bull ETN is designed to provide investors with exposure to the Barclays 2Y US Treasury Futures Targeted Exposure Index™. The ETNs are unsecured debt obligations of the issuer, Barclays Bank PLC, and are not, either directly or indirectly, an obligation of or guaranteed by any third party. Any payment to be made on the ETNs, including any payment at maturity or upon redemption, depends on the ability of Barclays Bank PLC to satisfy its obligations as they come due. An investment in the ETNs involves significant risks, including possible loss of principal, and may not be suitable for all investors.
The Barclays 2Y US Treasury Futures Targeted Exposure Index™ (the “Index”) is designed to decrease in response to an increase in the 2-year Treasury note yields and to increase in response to a decrease in 2-year Treasury note yields. The Index targets a fixed level of sensitivity to changes in the yield of the current “cheapest-to-deliver” note underlying the relevant 2-year Treasury futures contract at a given point in time. The Index seeks to achieve its target sensitivity through the allocation of a weighting to the relevant 2-year Treasury futures contract, as traded on the Chicago Board of Trade, underlying the Index. Owning the ETNs is not the same as owning interests in the futures contracts comprising the Index or a security directly linked to the performance of the Index. The expense ratio is 0.75%.
3. iPath US Treasury 10-year Bull Exchange Traded Note (DTYL)
The iPath® US Treasury 10-year Bull ETN is designed to provide investors with exposure to the Barclays 10Y US Treasury Futures Targeted Exposure Index™. The ETNs are unsecured debt obligations of the issuer, Barclays Bank PLC, and are not, either directly or indirectly, an obligation of or guaranteed by any third party. Any payment to be made on the ETNs, including any payment at maturity or upon redemption, depends on the ability of Barclays Bank PLC to satisfy its obligations as they come due. An investment in the ETNs involves significant risks, including possible loss of principal, and may not be suitable for all investors.
The Barclays 10Y US Treasury Futures Targeted Exposure Index™ (the “Index”) is designed to decrease in response to an increase in the 10-year Treasury note yields and to increase in response to a decrease in 10-year Treasury note yields. The Index targets a fixed level of sensitivity to changes in the yield of the current “cheapest-to-deliver” note underlying the relevant 10-year Treasury futures contract at a given point in time. The Index seeks to achieve its target sensitivity through the allocation of a weighting to the relevant 10-year Treasury futures contract, as traded on the Chicago Board of Trade, underlying the Index. Owning the ETNs is not the same as owning interests in the futures contracts comprising the Index or a security directly linked to the performance of the Index. The expense ratio is 0.75% like its sibling ETFs.
4. PIMCO 15+ Year US TIPS Index Fund (LTPZ)
The PIMCO 15+ Year U.S. TIPS Index Exchange-Traded Fund is the only exchange-traded fund (ETF) designed to capture, before fees and expenses, the returns of the longer maturity subset of the Treasury Inflation-Protected Securities (TIPS) market by tracking The BofA Merrill Lynch 15+ Year US Inflation-Linked Treasury IndexSM. The fund aims to achieve the real return (above inflation), capital preservation, and greater exposure to changes in real interest rates inherent in long maturity TIPS.The low expense ratio is 0.20%.
5. PIMCO 25+ Year Zero Coupon US Treasury Index Fund (ZROZ)
The PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund is an exchange-traded fund (ETF) that aims to capture the returns of The BofA Merrill Lynch Long US Treasury Principal STRIPS IndexSM. By tracking the index, the fund aims to achieve, before fees and expenses, the yield and duration exposure inherent in this index. It has a very low expense ratio of 0.15%.
6. First Trust Long Duration Opportunities ETF (LGOV)
The First Trust Long Duration Opportunities ETF’s (the “Fund”) primary investment objective is to generate current income with a focus on preservation of capital. Under normal market conditions, the Fund will invest at least 80% of its net assets (including investment borrowings) in a portfolio of investment-grade debt securities issued or guaranteed by the U.S. government, its agencies or government-sponsored entities, including publicly-issued U.S. Treasury securities and mortgage-related securities. The Fund may also invest in exchange-traded funds (“ETFs”) that principally invest in such securities. The Fund may purchase mortgage-related securities in “to-be-announced” transactions (“TBA Transactions”), including mortgage dollar rolls. Its expense ratio is on the loftier side at 0.65%.
7. Vanguard Ext Duration Treasury ETF (EDV)
The Vanguard Ext Duration Treasury ETF (EDV) seeks to track the performance of the Bloomberg Barclays U.S. Treasury STRIPS 20–30 Year Equal Par Bond Index. It is a passively managed fund that uses index sampling. The ETF offers diversified exposure to the long-term Treasury STRIPS market. The fund provides high current income with high credit quality. The expense ratio is very low at 0.07%.
8. Vanguard Long-Term Treasury ETF (VGLT)
The Vanguard Long-Term Treasury ETF (VGLT) seeks to provide a high and sustainable level of current income. The ETF invests primarily in government bonds. The fund maintains a dollar-weighted average maturity of 10 to 25 years. The expense ratio is very low at 0.07%, like its sibling.
9. iShares 20+ Year Treasury Bond ETF (TLT)
The iShares 20+ Year Treasury Bond ETF seeks to track the investment results of an index composed of U.S. Treasury bonds with remaining maturities greater than twenty years. The fund offers exposure to long-term U.S. Treasury bonds. Investors can get targeted access to a specific segment of the U.S. Treasury market, and use the ETF to customize their exposure to Treasuries. The expense ratio is low at 0.15%.
10. SPDR Portfolio Long Term Treasury ETF (SPTL)
The SPDR® Portfolio Long Term Treasury ETF seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Bloomberg Barclays Long U.S. Treasury Index (the “Index”). It is one of the low cost core SPDR Portfolio ETFs, a suite of portfolio building blocks designed to provide broad, diversified exposure to core asset classes. The fund seeks to offer precise, comprehensive exposure to US Treasuries with remaining maturities of 10 or more years. It has an expense ratio of only 0.06%.
For more fixed income ETF strategy, visit our Fixed Income Channel.