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Top 10 Total Bond ETFs


For some investors a "one size fits all" approach can be more compelling. After all, it's easier to deal with just one ETF in a sector than trying to deal with many different subsectors. Lastly, some investors feel they just don't have the resources to chop their allocation into many different ETFs devoted to bonds.

Therefore we examine a comprehensive list of aggregate bond ETFs to satisfy these investors. This seems more manageable for most investors. Let's remember, in the fixed-income sector there are many choices but with many being repetitive, it's not necessary to cover them all. In fact most of the choices we list in this review are repetitive although most sponsors would no doubt disagree.

Our goal is to cover the most important ETFs within this category using high assets under management, liquidity and/or strategies that make a difference the critical tests. Newer issues tied to new indexes with long (over 5 years) of historical data may be worth investigating, featuring and using if warranted after they become more seasoned. Total Bond ETFs have the characteristic of incorporating many different maturities and issues into one all-inclusive issue.

From a total return view, 2011 was a great year for bond investments generally. Investors fled stock markets and central bankers around the globe were lowering interest rates on fear of both stagnant economic growth and investor flight from equity markets. Ultimately this historically will lead to inflation as central planners can't have it both ways--fighting deflation and preventing inflation. (The U.S. Fed as of this publication is now 37 months into near zero interest rate policies.) This is why many bond investors have matched their fixed income holdings with gold. Finally we all know the reality the previous year's winners often become the next year's losers. With yields this low on many bond ETFs they're hard to justify given both the twin risks of low yields and long duration.

We rank the top 10 ETF by our proprietary stars system as outlined below. However, given that we're sorting these by both short and intermediate issues we have split the rankings as we move from one classification to another.


Strong established linked index
Excellent consistent performance and index tracking
Low fee structure
Strong portfolio suitability
Excellent liquidity

Established linked index even if "enhanced"
Good performance or more volatile if "enhanced" index
Average to higher fee structure
Good portfolio suitability or more active management if "enhanced" index
Decent liquidity

Enhanced or seasoned index
Less consistent performance and more volatile
Fees higher than average
Portfolio suitability would need more active trading
Average to below average liquidity

Index is new
Issue is new and needs seasoning
Fees are high
Portfolio suitability also needs seasoning
Liquidity below average

We feature a technical view of conditions from monthly chart views. Simplistically, we recommend longer-term investors stay on the right side of the 12 month simple moving average. When prices are above the moving average, stay long, and when below remain in cash or short. Some more interested in a fundamental approach may not care so much about technical issues preferring instead to buy when prices are perceived as low and sell for other reasons when high; but, this is not our approach.

Premium members to the ETF Digest receive added signals when markets become extended such as DeMark triggers to exit overbought/oversold conditions.

For traders and investors wishing to hedge, leveraged and inverse issues are available to utilize from ProShares and Direxion and where available these are noted.

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