Choosing A Bond ETF

Choosing a bond ETF may seem to be a particular daunting task, especially during these times.  How will you know which one is right for you?  There are many options available in bond market ETFs.  The first step in choosing the right one is to know exactly what an ETF is and what your options are in the market.

An ETF or exchange-traded fund is an investment consisting of a pool of securities bought and sold on the stock exchange in the same way as other company stocks.  ETFs have become increasingly diverse and specialized since their emergence.  They are intended to remain simple and inexpensive but still less risky than individual investment grade corporate bonds, commodity trading, currency trading, global stock exchanges, short selling and stock futures.  They have also been compared to mutual funds.  ETFs can be bought and sold any time and generally have low fees.  They also include brokerage fees and the bid-ask spread and include the same risks as other investments.

When you look into bond ETFs, you will find that there are several types of bonds available for purchase on the US stock exchange within this area including corporate bonds, international government bonds, mortgaged-back securities, US municipal bonds and US treasuries.  Corporate bonds include iShares iBoxx US Dollar Investment Grade Corporate Bond Fund (LQD), iShares iBoxx $ High Yield Corporate Bond Fund (HYG) and SPDR Lehman High Yield Bond ETF (JNK), which are all within the largest segment of corporate bond ETFs.

International government bonds include the US-based Emerging Markets Sovereign Debt Portfolio ETF (PCY) and SPDR DB International Government Inflation-Protected Bond ETF (WIP) as well as internationally based ETFs such as the Canadian BMO Canadian Government Bond Index ETF (ZGB-TSX) and Claymore 1-5 Yr Laddered Government Bond ETF (CLF-TSX) or the UK-based iShares CDN Government Bond Index Fund (XGB-TSX) and iShares Euro Government Bond 15-30 Fund (IBGL-LSE).

There are two mortgaged-backed securities: Mortgage-Backed Securities ETF (VMBS) and SPDR Barclays Capital Mortgage Backed Bond ETF (MBG).  There are more options in US municipal bonds such as Grail McDonnell Intermediate Municipal Bond ETF (GMMB) and Pre-Refunded Municipal Bond Index ETF (PRB) while US treasuries have several options within the largest segment of bond market ETFs including ProShares UltraShort 20+ Year Treasury Bond ETF (TBT).

As with any investment, you want to research your securities before you put your money into it.  Hopefully, this introduction to the ETF will help you begin your search for the investment right for you.