It doesn’t matter if it’s in the long or short end of the yield curve, with violent market movements like those investors have been experiencing lately, it’s a reminder that a move to bonds can benefit any portfolio, especially those that are lacking in the fixed income department.
With the Dow Jones Industrial Average losing 767 points during Monday’s market session, more volatility could be up ahead, which could feed into more capital inflows for bonds.
“Both short- and longer-term interest rates continued to fall, with the shorter portion of the yield curve remaining inverted as economic data weakened and inflation remained stubbornly low,” Proshares wrote in a quarterly performance review. “After a strong first quarter, investment grade and high yield bonds experienced more volatility during the second quarter, but still delivered positive returns. Higher quality investment grade credit outperformed high yield during the period.”
Investors looking to gain broad-based exposure to bonds can look at funds like the ProShares S&P 500 Bond ETF (NYSEArca: SPXB). The fund seeks investment results that track the performance of the S&P 500®/MarketAxess Investment Grade Corporate Bond Index, which consists exclusively of investment grade bonds issued by companies in the S&P 500.
According to Yahoo Finance performance numbers, SPXB is up 12.27 percent year-to-date.
Don’t Forget Bonds in Your Portfolio
It’s easy to overlook bonds as opposed to equities given their more static returns in nature as opposed to the more dynamic stocks that can move and shake when markets are roaring, as well as vice versa. While bonds may not be ideal for the adrenalin-fueled investor, they can still gain that much-needed fixed income exposure via exchange-traded funds.
As far as bonds not making money compared to U.S. equities, one can only look to the Bloomberg Barclays Aggregate Bond Index, which has been up every calendar year dating back to 1976. Furthermore, it experiences losses in only three of the last 42 years.
Lastly, bonds are ideal for every investor—retired or not. Fixed income provides a buffer against stock market volatility by being a safe haven asset, particularly when market drawdowns occur.
Investment-grade corporate bond-focused fixed-income ETF options include the iShares Intermediate Credit Bond ETF (NASDAQ: CIU), iShares iBoxx $ Invmt Grade Corp Bd ETF (NYSEArca: LQD) and Vanguard Interm-Term Corp Bd ETF (NASDAQ: VCIT). Investors looking for broad-based core bond exposure can look to a fund like the iShares Core US Aggregate Bond ETF (NYSEArca: AGG).