The year 2022 has not been kind to investors so far. Capital allocation and preservation have been a challenge across equities, bonds, and cryptocurrencies. Picking individual securities can be a challenge, even for seasoned investors.
This is where exchange-traded funds (ETFs) come to the rescue, as investors get to own a broad basket of securities across themes with only a single instrument. Last week, we highlighted four value stock ETFs that offered a way of gaining exposure to broader indices.
Today, we are putting the spotlight on four promising bond ETFs that can help investors achieve diversification, preserve capital, and earn regular payments while also using the current rate cycle to their advantage.
Vanguard Ultra Short Bond ETF (VUSB)
VUSB aims to provide current income while maintaining limited price gyrations. It seeks to maintain a dollar-weighted maturity of between zero and two years and invest 80% of its assets in fixed-income securities.
This actively managed ETF has an expense ratio of only 0.10% and has been down 1.09% so far in 2022. It has a 30-day Securities and Exchange Commission yield (SEC yield) of 2.71%. Further, VUSB has deployed its $2.7 billion of assets across 733 bonds, which offers investors broad diversification.
ProShares Short High Yield (SJB)
Investors in SJB are already sitting on 12.39% price gains in 2022, with the second half of the year yet to play out. This ETF seeks to deliver daily returns that are the inverse of the daily movement of the Markit iBoxx USD Liquid High Yield Index (HYG), which represents high yield corporate bonds that are denominated in USD.
The ETF is perfectly placed to profit from a falling market and offers investors a hedge against potential market drops. SJB has an expense ratio of 0.95% and offers a dividend yield of 1.10%.
PIMCO 1-5 Year US TIPS Index ETF (STPZ)
Treasury inflation-protected securities (TIPS) are one of the best avenues that offer protection against inflation. Although STPZ’s price is down 2% this year, the ETF offers a dividend yield of 5.27%.
STPZ aims to deliver returns that are in sync with the BofA Merrill Lynch 1-5 Year US Inflation-Linked Treasury index and has net assets of $1.58 billion. Most importantly, STPZ offers investors preservation of purchasing power in the face of inflation, lower volatility, and exposure to a segment of TIPS that has a shorter maturity.
Vanguard Total International Bond ETF (BNDX)
If you are looking to take your portfolio diversification a notch higher, then BNDX could be a great fit. This ETF provides exposure to bond markets outside the U.S. by tracking the Bloomberg Global Aggregate ex-USD Float-Adjusted RIC Capped Index. Moreover, at 0.07%, it has one of the lowest expense ratios.
The ETF deploys its total net assets of $88.2 billion across 6,627 bonds. BNDX has a dividend yield of 4.11% and invests around 55% of its assets in Europe, followed by the Pacific region (24.4%), North America (9.7%), and emerging markets (6%).
Closing Note
While the current macro environment poses risks across equities as well as bonds, pockets of opportunity remain available.
These carefully curated names offer capital safety and broad diversification as well as long-term cash flows, which if reinvested wisely could mean compounded returns.
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