This posting completes a comprehensive review in the fixed-income ETF segment. While this review seems a grab-bag collection of issues, we like keeping the list of choices at 10. This seems more manageable for most investors. We're not necessarily recommending one issue over another and where other interesting choices exist we mention them within each featured issue's review. 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. Each sponsor might disagree naturally.

Our goal is to cover the most important ETFs within each category using high assets under management, liquidity and/or strategies that make a difference in the critical tests. Newer issues tied to new indices with long (more than five years) of historical data may be worth investigating, featuring and using as a replacement if necessary.

We'll begin our review with Total Bond ETFs which have the characteristic of incorporating many different maturities and issues into one all-inclusive issue.

AGG (iShares Barclays Aggregate Bond Fund ETF) follows the Barclays Capital U.S. Aggregate Bond Index. It is the first, (launched September 2003) of several bond ETFs with a mix of U.S. Government, mortgage-backed, investment grade corporate and even some municipal bond securities. AUM (Assets under Management) exceeds $12 billion, average daily trading volume is over 750K shares and the expense ratio is .24%. The credit quality is all above BBB with 75% being AAA, while the maturity range is roughly 60% below 10 years with the balance 20 years or longer. The 12 month yield as of June 9, 2011 is 3.37%.

Data as of 6-03-2011

AGG Top Ten Holdings
  1. US Treasury Note        4.75%:                         3.76%
  2. US Treasury Bond       7.5%:               2.58%
  3. US Treasury Note        3.625%:           2.52%
  4. US Treasury Note        3.125%:           2.35%
  5. US Treasury Bond       8.125%:           2.02%
  6. Freddie Mac                4.5%:               1.94%
  7. US Treasury Note        3.375%:           1.93%
  8. US Treasury Note        1.75%:                         1.47%
  9. US Treasury Bond       7.625%:           1.47%
  10. US Treasury Bond       4.625%:           1.26%

 BND (Vanguard Total Bond Market ETF) also follows the Barclays U.S. Aggregate Bond Index and was launched in March 2003. Given the index, you'll not find much variation in holdings, durations or credit quality. The major difference is the expense ratio is .12% or half AGG and with yields this low it does make a difference. AUM equals $10 billion and average daily trading volume is near 800K shares. The current yield is around 2.67% but the total return over the past 12 months is nearly 5%.

You should also note Vanguard offers BSV (Vanguard Short-Term Bond ETF) which would compete nicely with previously featured SHY (iShares Short-Term Treasury ETF) 

Data as of 6-03-2011

BND Top Ten Holdings
  1. CMT Market Liquidity Rate:                 2.94%
  2. US Treasury Note        1.75%:            1.11%
  3. US Treasury Bond       6.25%:            0.88%
  4. US Treasury Note        0.375%:           0.88%
  5. US Treasury Note        1.375%:           0.85%
  6. US Treasury Note        0.75%:                         0.83%
  7. US Treasury Note        1.875%:           0.82%
  8. US Treasury Note        1.375%:           0.76%
  9. US Treasury Note        2.75%:                         0.65%
  10. US Treasury Note        1.75%:                         0.58%


GBF (iShares Barclays Government/Credit Bond ETF) tracks the Barclays Capital U.S. Government/Credit Bond Index was launched in January 2007. The AUM is a little over $100M and average daily trading volume is less than 6K shares. This ETF follows a wide range of bond issues with maturities greater than 1 year with roughly 47% below 5 years and balance evenly spread beyond. Over 65% of the assets are AAA rated with the balance investment grade except for 1.25% non-rated. The expense ratio is .20% and the one year return as of March 2011 was 5.11% while the current yield is roughly 3%.

Data as of June-03-2011

GBF Top Ten Holdings
  1. US Treasury Note        4.75%              7.70%
  2. US Treasury Note        4.625%            6.40%
  3. US Treasury Note        3.625%            5.70%
  4. US Treasury Note        1.375%            4.42%
  5. US Treasury Bond       7.625%            2.90%
  6. US Treasury Note        2.375%                        2.62%
  7. Bank of America           3.125%            2.37%
  8. US Treasury Note        1.25%              2.33%
  9. US Treasury Note        1.25%              2.33%
  10. US Treasury Note        0.625%                        2.31%

MUB (iShares S&P National Municipal Bond ETF) tracks the investment grade AMT-free segment of the municipal bonds nationally. The expense ratio is with interest rates now quite low .25%. This does take a lot of yield away. Nevertheless, AUM remains the highest of the entries in the space at 2.1 billion while average daily trading volume in relatively light at 126K shares. This indicates a strong buy and hold market for investors. Despite controversy regarding local governments' fiscal soundness and some warning of defaults, investors may hate taxes and love yield more than these warnings. As a bond principal myself, I can remember dealing with NYC in the mid-1970s when default was a daily threat. But then General Obligation bond holders had the assets of Central Park at their disposal as part of the pledge. Nevertheless, the bond crisis in this environment seems more widespread and much deeper. The current tax-exempt yield is around 3% or the same as Treasury securities. Credit quality is investment grade.

Investors could consider other national municipal bond ETFs from SPDR with TFI (SPDR Nuveen Barclays Capital Municipal Bond ETF) with many sponsors offering municipal issues based on individual state needs (New York, California and etc).  

Data as of June 2011

MUB Top Ten Holdings
  1. California St Go Bds                6%                   0.95%
  2. California St Water Rev            5.75%              0.65%
  3. North Tex TWY Rev                5.125%            0.59%
  4. Puerto Rico Sales Tax Rev      6%                   0.48%
  5. Triborough Bridge & Tunl        5%                   0.45%
  6. California St Go Bds                5%                   0.44%
  7. Greenville Cnty S C Sch Dist   5.5%                0.43%
  8. Colorado Dept Trans Rev        5%                   0.43%
  9. New York N Y Go Bds 5.25%                         0.43%
  10. Salt River Proj Ariz Rev            5%                   0.41%

BAB (PowerShares Build America Bonds ETF) tracks the BofA Merrill Lynch Build America Bond Index. It was issued along with the 2009 stimulus program launched by the Obama administration. These bonds are hybrid securities and have the unique position of being taxable under the guidelines linked HERE .  BAB's securities are 35% underwritten by the Federal government as to interest payments. These bonds have been extremely popular with institutional investors, particularly insurance companies. AUM equals roughly $700M while average daily trading volume is over 180K shares. The expense ratio is a hefty .35% while credit ratings are all investment grade. Given their taxable nature, yields have been higher at nearly 5%.

Data as of June 2011

BAB Top Ten Holdings
  1. New Jersey St Transp Auth Rev          5.754%                      1.63%
  2. California St Go Bds                            7.3%                1.41%
  3. Wisconsin St Go Bds                           5%                   1.41%
  4. New York N Y Go Bds                                  5.968%                       1.39%
  5. California St Go Bds                            7.55%              1.34%
  6. California St Go Bds                            7.625%                       1.28%
  7. New York St Twy Auth                                  5.449%                        1.17%
  8. Metropolitan Transn Auth                    5.871%             1.15%
  9. New Jersey St Tpk Auth                      7.414%                      1.07%
  10. Cowlitz Cnty Wash Pub Util Rev          6.884%           1.06%


HYD (Van Eck High Yield Municipal Bond ETF) tracks the Barclays Capital Municipal Custom High Yield Composite Index. In fact, Van Eck has quite a family of municipal bond offerings including: MLN (Long Municipal Index ETF), ITM (Intermediate Municipal Bond ETF), PRB (Pre-Refunded Municipal Bond ETF) and SMB (Short-term Municipal Index ETF). For our purposes, we're viewing a mix of those which are representative of the market overall.

This index has a 25% weighting in investment grade (BBB) bonds and 75% in non-investment grade issues. The expense ratio is .35%; AUM equals $239M with average daily trading volume in excess of 75K shares. The average duration is over 10 years with a 12 month yield of 6.2%, which is pretty good after tax.

Data as of June 2011

HYD Top Ten Holdings
  1. New Jersey Econ Dev Auth                 6.625%                       3.04%
  2. Texas Private Activity Bd Surf              7%                   2.01%
  3. Washington St HFA                             5.1%                1.83%
  4. Lycoming Cnty Pa Auth                        5.75%              1.80%
  5. Guam Govt Water Auth                        5.875%           1.73%
  6. Illinois Fin Auth                                    5.5%                1.63%
  7. Illinois Fin Auth                                               8%                   1.63%
  8. Puerto Rico Comwlth                           5.5%                1.53%
  9. South Carolina Jobs-Hospital               5.25%              1.52%
  10. Sioux Falls SD Health Facs Rev           5%                   1.52%

PFF (S&P U.S. Preferred Stock Index) tracks the index described parenthetically. The Fund was launched in March 2007 and has AUM of $7.8 billion with an average daily trading volume of 1.37M shares. The expense ratio is .48% and the current yield is roughly 5.50%. Through March 2011 the ETF has returned 10.41%. Typically, with most preferred issues you'll find mostly financial company names as index constituents. PFF is no different with nearly 85% of holdings from financial companies. This concentration is a risk factor investors need to consider.

Data as of June 2011

PFF Top Ten Holdings
  1. General Mtrs Cv                      2.91%
  2. HSBC Hldgs Pfd                      2.33%
  3. Barclays Bk Pfd                        2.07%
  4. Metlife Pfd                               1.61%
  5. BofA Pfd                                  1.51%
  6. Countrywide Cap Pfd              1.47%
  7. GMAC Cap Tr I Pfd                 1.43%
  8. Citigroup Cap VIII Pfd             1.42%
  9. BofA Pfd                                  1.40%
  10. Wells Fargo & Co Pfd:            1.39%


PGF (PowerShares Financial Preferred ETF) tracks the Wachovia Hybrid & Preferred Securities Financial Index. With a name like Wachovia, you might be shaking in your boots, but what's in a name anyway? Like I said, most preferred ETFs will be dominated by the financial sector and PGF makes no bones about it. The fund was launched in December 2006. AUM equals $1.8 billion and average daily trading volume is roughly 470K shares. The expense ratio is lofty at .60%. Quality ratings put most of the assets in the A to BB category. As of March 2011 PGF returned nearly 13% over 12 months and the current yield based on the continuing dividend is roughly 6.8%

Data as of June 2011

PGF Top Ten Holdings
  1. HSBC Pfd                               9.84%
  2. BofA Pfd                                  7.57%
  3. HSBC Pfd                               5.73%
  4. Ing Group NV Pfd                   5.60%
  5. BofA Pfd                                 4.85%
  6. Wells Fargo Pfd                      4.73%
  7. JP Morgan Chase Pfd             4.43%
  8. Credit Suisse Pfd                    4.34%
  9. Metlife Pfd                               4.27%
  10. Ing Group NV Pfd                    4.11%

PGX (PowerShares Preferred ETF) tracks the BofA Merrill Lynch Core Fixed Rate Preferred Securities Index. Here's an example of receptiveness even from the same issuer despite the different index. The expense ratio is lower at .50% and on the surface the constituents look the same but the difference is only with a slight exposure to U.S. bonds. The credit quality vs PGF is virtually the same as is the exposure to the financial sector at 86%. The current dividend yield is also comparable at 6.6% with a one year return through March 2011 of 11.70%

Data as of June 2011

PGX Top Ten Holdings
  1. Wells Fargo & Co, Pfd                         4.96%
  2. Barclays Bank Pfd                                4.53%
  3. Citigroup Cap XIII Pfd                         4.12%
  4. Citigroup Cap XIII Pfd                         4.09%
  5. JP Morgan Chase Pfd                          3.79%
  6. HSBC Hldgs Pfd                                  3.65%
  7. Morgan Stanley VII Pfd                                    3.57%
  8. HSBC Hldgs Pfd                                   3.41%
  9. BofA Pfd                                              3.39%
  10. BofA Pfd                                              3.31%

CWB (SPDR Convertible Bond ETF) is linked to the Barclays Capital U.S. Convertible Bond > $500M Index which follows only those issues with issue sizes great than $500M. The issue was launched in April 2009 and has AUM of $913M with average daily trading volume of 250K shares. The constituents consist of convertible bonds versus preferred stocks as listed before.
The expense ratio is .40. Bond duration is less than 10 years with a current yield of roughly 3.98%. YTD performance through May 31, 2011 was 5.48%.

Data as of June 2011

CWB Top Ten Holdings
  1. General Mtrs Cv                                  3.89%
  2. Wells Fargo & Co Pfd                          3.43%
  3. Citigroup Pfd                                       3.07%
  4. BofA Pfd                                              2.73%
  5. Metlife                                                 2.59%
  6. EMC Corp Cv              1.75%              2.50%
  7. EMC Corp Cv             1.75%              2.15%
  8. Chesapeake Engy Cv  2.5%                2.12%
  9. Intel 144A Cv               3.25%              2.01%
  10. Amgen Cv                    0.375%                       1.97%

This report may seem a hodgepodge of three separate areas and it is. But, there just aren't enough distinct ETF products in these categories for one report. The only exception could be municipal bonds where the category is expanding. Mentioned within the muni category were several Van Eck and SPDR products. Perhaps this area will be spun-off to its own category in the future.

Once again, we've chosen to keep the list to 10 although other issues are and will continue to make their presence felt. All of this is a matter of choice for any investor. The real choice here remains in other factors beyond maturity risk but consider credit quality assessment risk.

While the quest for yield, given periodic stock market loathing and changing demographics, dominates investment preferences, investors are advised to recognize added risks with heavy financial sector concentration with preferred shares. Even if global interest rates drop due to economic weakness, this may not transfer to weaker credits as some may suffer serious declines in such an environment. This has happened frequently.

Municipal bonds are under increasing pressure to avoid default threats articulated by some pundits as likely given weak tax receipts particularly with smaller municipalities and revenue bond structures. General obligation bonds require the issuer to raise taxes and/or cut spending to meet interest and principal payments as holders stand first in line ahead of salaries to bureaucrats and civil servants.

As stated with other sectors, remember that ETF sponsors must issue and 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 using retail or other ETFs see .

You may address any feedback to:   

(Source for holding data is from ETF Database and from various sponsors.)
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.