Investors seeking an easy way to fill out a fixed-income portfolio may start off with an aggregate or total bond market ETF that provides diversified exposure to U.S. government and corporate debt securities.
Investors looking for fixed income exchange traded funds with sizable rosters have plenty of options to consider, including the cost-effective iShares Core Total USD Bond Market ETF (NASDAQ: IUSB).
The iShares Core Total USD Bond Market ETF, which is nearly four years old and has $2.14 billion in assets under management, tracks the Bloomberg Barclays U.S. Universal Index and holds over 6,300 bonds.
“This fund offers exposure to a wide range of taxable, U.S.-dollar-denominated bonds with maturities of one year or longer and any credit rating,” said Morningstar in a recent note. “It weights these securities by market capitalization, tilting the portfolio toward investment-grade bonds. The investment-grade portion takes up more than 90% of the fund, in line with its category peers. Also, low-yielding, yet secure US Treasuries and government-sponsored enterprise mortgage-backed-securities make up roughly half of the portfolio.”
IUSB Among Lease Expensive Bond Funds
IUSB has a 30-day SEC yield of 3.15% and an effective duration of 5.70 years. The ETF charges just 0.06% per year, or $6 on a $10,000 investment, making it one of the least expensive bond funds on the market today.
“Its bias toward highly rated securities could help mitigate the credit risks associated with high-yield holdings and preserve its value during market downturns,” said Morningstar.
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About 61% of IUSB’s holdings are rated AAA and the ETF features little exposure to bonds with non-investment grade ratings. Over 55% of the fund’s holdings are Treasuries or mortgage-backed-securities (MBS).
“Although the fund’s duration is similar to the category average, it has considerable exposure to interest-rate risk. Its duration of 5.3 years implies that if the rate rises by 1 percentage point, in theory this fund would lose approximately 5.3% of its value,” according to Morningstar.
Morningstar has a Silver rating on IUSB. The ETF is lower by 2.37% this year as the Federal Reserve raised interest rates in March and plans to do the same several more times in 2018.
For more on the bond market, visit our fixed income channel.