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Top 10 Global Government Bond ETFs

In a world of depressed or low interest rates combined with a debt crisis it might be hard to imagine investors would be interested in bonds from this sector. That said an overseas investor might from their view see the U.S. Treasury bond market in the same manner--low interest rates, credit downgrades, enormous debt and funding requirements or supply.

Strangely or not investors, especially institutional investors, have their investment guidelines and mandates which include bonds from a variety of sources and sectors. So while the situation in the eurozone may seem off-putting investors still forge ahead with their investments at least for now. Another reason why investors seem confident in their investing is that most central banks are in full bailout mode and are propping markets as best they can with various QE (Quantitative Easing) strategies or plain old fashioned money printing. This is why many investors pair their bond holdings with gold but that's another subject for another day.

In this review we'll post the most popular to the most interesting issues in the category we can find. Rankings are more difficult and subjective especially given the newness and unique issues available as we descend from high AUM (Assets under Management) to newer issues still finding their way to gaining attention.

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.

#10: Pimco Australian Bond ETF (AUD)

AUD follows the BofA Merrill Lynch Diversified Australia Bond Index which tracks the performance of large, Australian dollar-denominated investment grade debt instruments publicly issued in the Australian domestic market, including sovereign, quasi-government, corporate, securitized and collateralized securities.

The fund was launched in November 2011. The expense ratio is .45%.  AUM equal $22 million and average daily trading volume is less than 4K shares. As of late January 2012 the annual dividend yield is projected at 3.38% and YTD return 1.82%.

Data as of First Quarter 2012

AUD Top Ten Holdings & Weightings
  1. New S Wales Treasury Crp: 9.72%
  2. Queensland Treasury Corp: 5.38%
  3. Australian Government: 5.02%
  4. New S Wales Treasury Crp Loc Gov Gtd 16: 4.84%
  5. Intl Finance Corp: 4.70%
  6. Australian Government Bd Sr Unsec 124: 3.68%
  7. Hsbc Bank Plc: 3.29%
  8. Telstra Corp Ltd: 3.23%
  9. Australian Government: 3.11%
  10. Queensland Treasury Corp: 2.79%

#9: WisdomTree Australia / New Zealand Bond ETF (AUNZ)

AUNZ is not linked to a specific benchmark and would likely be considered a more active ETF. From the sponsor website is this description: WisdomTree Australia & New Zealand Debt Fund seeks a high level of total returns consisting of both income and capital appreciation. The Fund attempts to achieve its investment objective through investment in debt securities denominated in Australian or New Zealand Dollars. 

The fund was launched in June 2008 first as BNZ (New Zealand Dollar ETF) but changed in October 2011 as this reconstituted ETF. The expense ratio is .45%. AUM equal $26 million and average daily trading volume is 18K shares. As of late January 2012 the annual dividend yield is 3.55% and YTD return 1.01%. The most recent one year return which presumably includes BNZ data was -3.14%.

Data as of First Quarter 2012

AUNZ Top Ten Holdings
  1. Australia(Cmnwlth) 5.5%: 3.60%
  2. Australia(Cmnwlth) 5.25%: 3.59%
  3. Australia(Cmnwlth) 5.75%: 3.53%
  4. Australia(Cmnwlth) 5.5%: 3.48%
  5. Euro Inv Bk 5.375%: 3.39%
  6. Australia(Cmnwlth) 4.5%: 3.12%
  7. Australia(Cmnwlth) 4.25%: 3.10%
  8. Australia(Cmnwlth) 4.75%: 3.00%
  9. Asian Dev Bk 6%: 2.98%
  10. New Zealand(Govt) 6%: 2.82%

#8: PowerShares German Bund Futures ETF (BUNL )

BUNL follows the DB USD Bund Futures Index which is intended to measure the performance of a long position in Euro-Bund Futures. The underlying assets of Euro-Bund Futures are Federal Republic of Germany government issued debt securities (Bunds) with a remaining term to maturity of not less than 8 years and 6 months and not more than 10 years and 6 months as of the futures contract delivery date.

The fund was launched in March 2011. The expense ratio is .50%. AUM equal $30 million and average daily trading volume is less than 3K shares. As of late January 2012 there isn't an annual dividend available and YTD return was -.91%. The six month return was 8.49%.

Holdings are German Bund Futures contracts as described above.

#7: Van Eck Emerging Markets Local Currency ETF (EMCL)

EMLC follows the J.P. Morgan Government Bond Index Emerging Markets Global Core Index which tracks a basket of bonds issued in local currency by emerging market governments. The fund was launched in July 2010. The expense ratio is .48%. AUM equal $526 million and average daily trading volume is 173K shares. As of late January 2012 the annual dividend yield was 5.76% and YTD return 4.04%. The one year return was 2.22%.


Data as of First Quarter 2012

EMLC Top Ten Holdings
  1. Transnet Soc 10.8%: 2.98%
  2. Chile Rep 5.5%: 2.97%
  3. Rushydro Fin L 7.875%: 2.78%
  4. Eskom Hldgs Ltd, South Africa 9.25%: 2.44%
  5. Colombia Rep Euro Mtn Be Regs 12%: 1.98%
  6. Banco Do Brasil Sa Mtn Be Regs 9.75%: 1.97%
  7. Malaysia 4.378%: 1.96%
  8. Intl Bk Recon&Dv 6.5%: 1.84%
  9. Poland(Rep Of) 5.5%: 1.76%
  10. Peru(Rep Of) 7.84%: 1.73%

#6: iShares International Inflation-Linked Bond ETF (ITIP)

ITIP follows the BofA Merrill Lynch Global ex-US Diversified Inflation-Linked Index and is a broad, market value weighted, capped total return index designed to measure the performance of inflation-linked sovereign debt that is publicly issued and denominated in the issuer. The fund was launched in May 2011.

AUM equal $41 million and average daily trading volume is less than 7K shares. As of late January 2012 the annual dividend yield was 2.69% and YTD was 4.04%. The six month return was -6.65%.

Data as of First Quarter 2012

ITIP Top Ten Holdings Weightings
  1. France(Govt Of) 1.07943%: 4.68%
  2. Nota Do Tesouro Nacional 8/20 Fixed 6: 3.17%
  3. Nota Do Tesouro Nacional Notes 05/17 6.: 2.84%
  4. Bono Bco Cent Chile Uf Bonds 02/21 3.: 2.48%
  5. Tsy 2 1/2 2024i/L Stock Bonds 07/24 2.5: 2.34%
  6. Poland(Rep Of) 3.52047%: 2.30%
  7. Sweden(Kingdom Of) 4.1612%: 2.09%
  8. United Kingdom (Government Of) 1.46371%: 2.06%
  9. Sth Africa(Rep Of) 5.5%: 1.97%
  10. Nota Do Tesouro Nacional 08/50 Fixed 6: 1.88%

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AUNZ $17.82 -0.56%
BUNL $32.00 0.00%
BWZ $31.72 -0.31%
BWX $56.52 -0.28%
WIP $54.40 -0.56%


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