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.


#1: Vanguard Short-Term Bond ETF (BSV)

 

BSV follows the Barclays Capital U.S. 1-5 Year Government/Credit Bond Index which includes all medium and larger issues of U.S. government, investment-grade corporate, and investment-grade international dollar-denominated bonds that have maturities of between 1 and 5 years and are publicly issued. The fund was launched in April 2007. The expense ratio is .14%.

AUM (Assets under Management) equal $7.5 billion and average daily trading volume is 657K shares. As of late January 2012 the annual dividend yield was 1.89% and YTD return was .32%. The one year return was 2.54%.

Data as of First Quarter 2012

BSV Top Ten Holdings & Weightings
  1. US Treasury Note 0.375%: 2.01%
  2. US Treasury Note 2.5%: 1.81%
  3. US Treasury Note 2.625%: 1.77%
  4. US Treasury Note 0.625%: 1.71%
  5. US Treasury Note 1.75%: 1.66%
  6. US Treasury Note 2.375%: 1.62%
  7. US Treasury Note 2.625%: 1.59%
  8. US Treasury Note 1%: 1.59%
  9. US Treasury Note 1.375%: 1.56%
  10. US Treasury Note 0.5%: 1.48%

 

 

#2: Vanguard Intermediate Term Bond ETF (BIV)

BIV follows the Barclays Capital U.S. 5-10 Year Government/Credit Bond Index which includes all medium and larger issues of U.S. government, investment-grade corporate, and investment-grade international dollar-denominated bonds that have maturities between 5 and 10 years and are publicly issued. The fund was launched in April 2007. The expense ratio is .11%.

AUM equal $2.8 billion and average daily trading volume is 223K shares. As of late January 2012 the annual dividend yield was 3.62% and YTD return was -.05%. The one year return was 9.32%. 

Data as of First Quarter 2012

BIV Top Ten Holdings & Weightings
  1. US Treasury Note 3.625%: 3.49%
  2. US Treasury Note 3.625%: 3.46%
  3. US Treasury Note 3.125%: 3.38%
  4. US Treasury Note 3.5%: 3.25%
  5. US Treasury Note 3.375%: 3.21%
  6. US Treasury Note 2.125%: 3.20%
  7. US Treasury Note 3.75%: 2.63%
  8. US Treasury Note 3.125%: 2.10%
  9. US Treasury Note 3.625%: 2.08%
  10. US Treasury Note 4%: 2.07%

 

#3: Vanguard Total Bond Market ETF (BND)

BND follows the Barclays U.S. Aggregate Bond Index. The fund was launched in March 2003. The expense ratio is .12% or nearly half that of AGG. Given the index, you'll not find much variation in holdings, durations or credit quality. The fund was launched in April 2007.

AUM equal $14.6 billion and average daily trading volume is 1.4M shares. As of late January 2012 the annual dividend yield was 3.17% and YTD return .20%. The one year return was 7.25%.

Data as of First Quarter 2012

BND Top Ten Holdings & Weightings
  1. CMT Market Liquidity Rate: 3.47%
  2. US Treasury Note 0.625%: 1.35%
  3. US Treasury Bond 6.25%: 1.02%
  4. US Treasury Note 1.375%: 0.82%
  5. US Treasury Note 1.875%: 0.77%
  6. US Treasury Note 1.375%: 0.77%
  7. US Treasury Note 1%: 0.75%
  8. Gnma Ii 30yr Tba Oct: 0.72%
  9. US Treasury Bond 4.5%: 0.64%
  10. US Treasury Note 0.375%: 0.61%

 

#4: iShares Barclays Aggregate Bond Fund ETF (AGG)

AGG follows the Barclays Capital U.S. Aggregate Bond Index which consists of a mix of U.S. Government, mortgage-backed, investment grade corporate and even some municipal bond securities. 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 fund was launched September 2003. The expense ratio is .20%. 

AUM (Assets under Management) equal $14 billion and average daily trading volume is over 1M shares. As of late January 2012 the annual dividend yield was 3.17% and YTD return was .20%. The one year return was 7.70%.

Data as of First Quarter 2012

AGG Top Ten Holdings & Weightings
  1. US Treasury Note 4.75%: 3.46%
  2. US Treasury Bond 7.5%: 2.59%
  3. US Treasury Note 3.625%: 2.39%
  4. US Treasury Note 3.125%: 2.28%
  5. US Treasury Bond 8.125%: 1.93%
  6. US Treasury Note 3.375%: 1.80%
  7. FHLMC 4.5%: 1.76%
  8. US Treasury Bond 7.625%: 1.54%
  9. US Treasury Bond 4.625%: 1.54%
  10. US Treasury Note 2.375%: 1.22%

 

#5: iShares Barclays Intermediate Bond ETF (GVI)

GVI follows the Barclays Capital U.S. Intermediate Government/Credit Bond Index which measures the performance of U.S. Dollar denominated U.S. Treasuries, government-related and investment grade U.S. corporate securities that have a remaining maturity of greater than one year and less than ten years. The fund was launched in January 2007. The expense ratio is .20%.

AUM equal$700 million and average daily trading volume is 41K shares. As of late January 2012 the annual dividend yield was 2.64% and YTD return was -.05%. The one year return was 5.99%.

Data as of First Quarter 2012

GVI Top Ten Holdings & Weightings
  1. US Treasury Note 4.75%: 8.50%
  2. US Treasury Note 4.875%: 7.14%
  3. US Treasury Note 3.375%: 4.06%
  4. US Treasury Note 0.625%: 2.90%
  5. US Treasury Note 3.625%: 1.90%
  6. FHLMC 4.5%: 1.80%
  7. US Treasury Note 1.25%: 1.76%
  8. US Treasury Note 1.875%: 1.67%
  9. US Treasury Note 1.75%: 1.64%
  10. US Treasury Note 3.625%: 1.57%

 

#6: Schwab U.S. Aggregate Bond ETF (SCHZ)

SCHZ follows the Barclays Capital U.S. Aggregate Bond Index which measures the performance of the U.S. investment grade bond market. The fund was launched recently in July 2011. The expense ratio is .10%. AUM equal $186 million and average daily trading volume 84K shares. SCHV trades commission free for Schwab customers.

As of late January the annual dividend yield was 2.64% and YTD return was -.15%. The most recent long term return was 6 months at 4.07%. 

Data as of First Quarter 2012

SCHZ Top Ten Holdings & Weightings
  1. US Treasury Note 2.625%: 1.51%
  2. US Treasury Bond 9.125%: 1.25%
  3. FNMA 5.5%: 1.24%
  4. FNMA 4.5% TBA: 1.24%
  5. US Treasury Note 0.25%: 1.21%
  6. US Treasury Note 1.375%: 1.14%
  7. US Treasury Note 2.5%: 1.13%
  8. US Treasury Note 1.75%: 1.13%
  9. FHLMC Tba Jan 30 Gold Single: 1.12%
  10. US Treasury Bond 4.375%: 1.10%

 

#7: SPDR Barclays Aggregate Bond ETF (LAG)

LAG also follows the Barclays Capital U.S. Aggregate Bond Index which measures the performance of the U.S. investment grade bond market. The fund was launched in May 2007. The expense ratio is .15%.

AUM equal $307 million and average daily trading volume is 43K shares. As of late January 2012 the annual dividend yield was 2.55% and YTD return was -.15%. The one year return was 7.39%. 

Data as of First Quarter 2012

LAG Top Ten Holdings
  1. FHLMC: 3.08%
  2. FNMA: 2.98%
  3. FNMA 4.5% TBA: 2.12%
  4. FNMA 4% TBA: 1.66%
  5. GNMA Jan 30 Single Fam: 1.57%
  6. US Treasury Note 3.125%: 1.54%
  7. FHLMC Tba Jan 30 Gold Single: 1.52%
  8. GNMA: 1.35%
  9. US Treasury Note 3.125%: 1.29%
  10. US Treasury Note 0.5%: 1.25%

 

#8: iShares Barclays Government / Credit Bond ETF (GBF)

GBF follows the Barclays Capital U.S. Government/Credit Bond Index. 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 fund was launched in January 2007. The expense ratio is .20%.

AUM equal $124M and average daily trading volume is less than 8K shares. As of late January 2012 the annual dividend yield was 3.05% and YTD return .18%. The one year return was 10.10%.

Data as of First Quarter 2012

GBF Top Ten Holdings & Weightings
  1. US Treasury Note 4.625%: 6.39%
  2. US Treasury Note 4.75%: 6.01%
  3. US Treasury Note 3.625%: 5.97%
  4. US Treasury Bond 7.625%: 3.14%
  5. US Treasury Note 2%: 2.82%
  6. US Treasury Note 2.375%: 2.68%
  7. US Treasury Bond 4.5%: 2.67%
  8. US Treasury Note 1.25%: 2.28%
  9. US Treasury Note 1.25%: 2.28%
  10. US Treasury Note 0.625%: 2.24%

 

#9: iShares 10+ Year Government / Credit Bond ETF (GLJ)

GLJ (iShares 10+ Year Government/Credit Bond ETF) follows the BofA Merrill Lynch 10+ year U.S. Corporate & Government Index which includes publicly issued U.S. Treasury debt, U.S. government agency debt, taxable debt issued by U.S. states and territories and their political subdivisions, debt issued by U.S. and non-U.S. corporations, non-U.S. government debt and supranational debt.

The fund was launched in December 2009. The expense ratio is .20%. equal $24 million and average daily trading volume is less than 4K shares. As of late January 2012 the annual yield is 4.08% and YTD return was -1.51%. The one year return was 22.09%.

Data as of First Quarter 2012

GLJ Top Ten Holdings & Weightings
  1. US Treasury Bond 4.75%: 5.04%
  2. US Treasury Bond 3.875%: 3.93%
  3. US Treasury Bond 4.375%: 3.08%
  4. US Treasury Bond 3.5%: 2.76%
  5. US Treasury Bond 4.25%: 2.76%
  6. US Treasury Bond 4.375%: 2.44%
  7. US Treasury Bond 4.25%: 2.33%
  8. US Treasury Bond 4.75%: 2.10%
  9. US Treasury Bond 6.25%: 2.05%
  10. US Treasury Bond 7.25%: 1.75%


#10: PowerShares CEF Income Composite ETF (PCEF)

PCEF (PowerShares CEF Income Composite ETF) follows the S-Network Composite Closed-End Fund Index which is a rules-based index intended to give investors a means of tracking the overall performance of a global universe of U.S.-listed closed-end funds. CEFX is reconstructed on a quarterly basis from a universe of approximately 350 closed-end funds. The fund was launched in February 2010. The expense ratio is .50%. (Remember, holding closed-end funds means you're paying fees on them in addition to PCEF.)

AUM AUM equal $242 million and average daily trading volume is 78K shares. As of late January 2012 the annual dividend yield was 8.50% and YTD return was .70%. The one year return was 4.86%.

Data as of First Quarter 2012

PCEF Top Ten Holdings & Weightings
  1. Eaton Vance Tax-Mgd Glb Divrs Equity Inc: 5.28%
  2. Alliance Bernstein Income Fund: 4.20%
  3. Eaton Vance Limited Duration Income: 3.02%
  4. Eaton Vance Tax-Managed Divrs Equity Inc: 2.88%
  5. Eaton Vance Tx-Mgd Glbl Buy-Write Opp: 2.43%
  6. Aberdeen Asia-Pacific Income Fund: 2.39%
  7. Nuveen Multi-Strategy Income & Growth 2: 2.38%
  8. Blackrock Build America Bond Trust: 2.28%
  9. NFJ Dividend, Interest & Premium Strat: 2.07%
  10. Nuveen Quality Preferred Income 2: 1.76%

With the bonds listed above there are enough to choose from to satisfy any investor need. Again, 37 months of zero interest policies from the U.S. Fed have kept interest rates and yields low. Fear from stock market volatility and investor demographics have stimulated buying of bond ETFs overall.

It's also important to remember that ETF sponsors have their own competitive business interests when issuing products which may not necessarily align with your investment needs. New ETFs from highly regarded and substantial new providers are also being issued. These may include Charles Schwab's ETFs and Scottrade's Focus Shares which both are issuing new ETFs with low expense ratios and commission free trading at their respective firms. These may also become popular as they become seasoned. 

For further information about portfolio structures using technical indicators like DeMark and other indicators, take a free 14-day trial at ETF Digest . Follow us on Twitter and Facebook as well and join our group conversations.

You may address any feedback to: feedback@etfdigest.com   

The ETF Digest is long BNDin the featured ETFs. 

(Source for data is from ETF sponsors and various 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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