Top 10 Government and Inflation-Protected Bond ETFs

Once again we've chosen to keep the list to 10 although other competitors are mentioned frequently. All of this is a matter of choice for any investor. These lists remain long and sometimes quite repetitive as components vary little one to another. The real choice here is maturity selection or what duration risk are you willing to assume. The longer out the curve you go the greater the return and risk to principal.

As a former bond principal I'm really not in favor of bonds now. It may be I suffer from the "the closer you are to something, the less you like it" syndrome. Nevertheless, yields are skimpy and risks from budding inflation high with longer maturities. With shorter maturities you do little better than yields from the bank after headline inflation. So, given the environment with many uncertainties "cash" from money market funds and/or T-Bills is just fine for now.

I'm not particularly impressed with the inflation calculations for most U.S. bond issues believing there's very little real protection when the inflation component is flawed.  That said, we are long some of these issues because as trend-followers that's what we do.

Remember, many institutions (insurance companies, pension plans and many asset allocation models) call for large bond allocations. Some insurance companies may only own bonds given their actuarial table requirements. If you're an individual investor you're not under the same pressures no matter what you hear in the media.

Further previous non-correlations of bonds to stocks for example have been whittled away given current monetary policies of the Fed. This only adds to risks already mentioned.

If you must buy them, our bias generally is to more liquid issues unless we utilize them in Lazy portfolio approaches. Just always remember ETF sponsors must issue and many times their interests aren't aligned with yours. They have a business interest and wish to have a competitive presence in any popular sector.

For further information about portfolio structures and trading information including DeMark technical indicators using ETFs see www.etfdigest.com.

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The ETF Digest has current positions in SHY and IEF.

(Source for holding data is from various sponsor websites and other ETF data providers.)

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Dave Fry is founder and publisher of ETF Digest, Dave's Daily blog and the best-selling book author of Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management, published by Wiley Finance in 2008. A detailed bio is here: Dave Fry.

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