Whether it’s trade agreements or Covid-19, bond exchange-traded funds (ETFs) have been the beneficiary of U.S.-China trade tensions. As such, investors shouldn’t forget to add a healthy dose of bond exposure via ETFs if they haven’t done so already.
“Exchange-traded funds with exposure to bonds rallied Tuesday, on track for their best performance in two weeks, as a flare-up in tensions between the U.S. and China dampened risk appetite,” a MarketWatch report noted on Tuesday. “The iShares 20+ Year Treasury Bond ETF TLT, +0.71% gained more than 0.5% midday, while the SPDR Portfolio Long-Term Treasury ETF SPTL, +0.70% rose more than 0.6%.”
“The broader stock market SPX, +0.23% was up 0.2%, while the yield on the U.S. 10-year note TMUBMUSD10Y, 0.664% was down about 2 basis points,” the report added. “Bond yields fall as prices rise, reflecting growing demand. Bond ETFs have had a banner year: as the Federal Reserve buys up corporate debt to stabilize the economy in the wake of the coronavirus pandemic, it pushes investors into other assets. Both funds noted above are up more than 21% in the year to date, compared to barely 5% for the S&P 500.”
ETF investors looking for core bond exposure can look to the iShares Core U.S. Aggregate Bond ETF (AGG ), which has been the go-to fund for investors.
- AGG seeks to track the investment results of the Bloomberg Barclays U.S. Aggregate Bond Index.
- The index measures the performance of the total U.S. investment-grade bond market.
- The fund generally invests at least 90% of its net assets in component securities of its underlying index and in investments that have economic characteristics that are substantially identical to the economic characteristics of the component securities of its underlying index.
Reasons to use AGG:
- Broad exposure to U.S. investment-grade bonds
- A low-cost easy way to diversify a portfolio using fixed income
Use at the core of your portfolio to seek stability and pursue income
Another ETF to consider is the Goldman Sachs Access Investment Grade Corporate Bond ETF (GIGB). GIGB seeks to provide investment results that closely correspond to the performance of the FTSE Goldman Sachs Investment Grade Corporate Bond Index.
The fund seeks to achieve its investment objective by investing at least 80% of its assets (exclusive of collateral held from securities lending) in securities included in its underlying index. The index is a rules-based index that is designed to measure the performance of investment grade, corporate bonds denominated in U.S. dollars that meet certain liquidity and fundamental screening criteria.