Negative Rates or Not, This ETF Provides Global Fixed Income Exposure

Despite U.S. Treasury yields at lows with only long-term issues like the 30-year bond yielding over 2%, it’s hard to fathom that in other parts of the world like Germany, there is negative-yielding debt. However, investors shouldn’t shy away from global fixed income exposure, especially when it comes to ETFs.

2019’s record year for bond prices helped investors who were looking to capitalize on price gains, but it did no favors for those relying on yield for income purposes. Treasury yields hit lows as the central bank implemented rate-cutting measures in 2019, but investors in 2020 can feed their need for yield by getting active and going overseas.

The Federal Reserve put its more dovish side on display last year, which pivoted from 2018’s rate-hiking bonanza. In addition, fixed income investors are facing other challenges like inverted yield curves and signs of slowing global growth, but the chase for yield isn’t an impossible endeavor.

Nonetheless, investors can look overseas for higher-yielding assets via ETFs like the Vanguard Total International Bond Index Fund ETF Shares (NasdaqGM: BNDX). BNDX seeks to track the performance of a benchmark index that measures the investment return of non-U.S. dollar-denominated investment-grade bonds.

BNDX employs an indexing investment approach designed to track the performance of the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged). This index provides a broad-based measure of the global, investment-grade, fixed-rate debt markets.

Institutional investors like J.P. Morgan understand the importance of global fixed income exposure with a stake in funds like BNDX. Per a CNBC report, “J.P. Morgan Private Investments has a 24.4% ownership stake in the Vanguard Total International Bond (BNDX) fund, according to FactSet. J.P. Morgan Chase Bank also has a small piece of the fund, which has $25 billion in assets and is the largest ETF in its class.”

Thus far, the fund has been yielding 8.37% within the past year.

“The funds that were invested in these [bonds]had a pretty good year last year through September,” said Nicholas Colas, co-founder of DataTrek Research. “The joke was 2019 was when you bought stocks for yield and bonds for capital appreciation.”

For investors seeking high-yielding income and emerging markets exposure, they can look to the VanEck Vectors EM High Yield Bond ETF (NYSEArca: HYEM). HYEM seeks to replicate the ICE BofAML Diversified High Yield US Emerging Markets Corporate Plus Index, which is comprised of U.S. dollar denominated bonds issued by non-sovereign emerging market issuers that have a below investment grade rating and that are issued in the major domestic and Eurobond markets.

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