7 Bond ETFs That Might Enjoy Capital Appreciation This Year

Yields on treasury bonds have been rising and many say that this is an inevitable trend. Yet bond income investors shouldn't fret about falling prices of treasury bonds. (You were in it for the income stream and safety weren't you?!)

Regardless of U.S. treasury yields, bond investors have a variety of bond ETF choices to augment their interest income. What's more, in many instances, one may anticipate a bit of capital appreciation.

Why would a bond ETF have capital appreciation potential? For one thing, the 08-09 bear didn't discriminate between asset type, mauling all types of bonds except for U.S. treasuries. And while many of these beaten down bond segments have already recovered some of those losses, they're a long way from recovering to pre-financial meltdown levels.

Foreign bonds, in particular, also show appreciation potential; that is, if the U.S. dollar continues to decline, foreign bonds will be probable beneficiaries.

Munis, corporates, convertibles, high-yield, foreign, even mortgage-backed security bonds. Some ETFs deliver on the income promise at a reasonable risk. And that means if you need to outperform CDs but stock investing is too nerve-wracking... bond ETFs may be the answer.

Here are 7 bonds for a portion of your overall portfolio... or even as a stand-alone, bond-only arrangement. Keep in mind that changing circumstances warrant modifying holdings over time.

Bond Investments For 2009
					Annual Yield		1/1-5/1 YTD%
SPDR International Inflation Protected				WIP	2.9%		7.4%
iShares Fixed MBS Bond Fund				MBB	2.9%		0.4%
PowerShares Insured National Muni				PZA	4.8%		6.8%
SPDR Convertible Bond ETF				CWB	5.0%		N/A
iShares Barclays Intermediate Corp Credit				CIU	5.4%		2.8%
PowerShares Emerginig Sovereign Debt				PCY	6.5%		16.5%
Templeton Global Income CEF				GIM	6.0%		13.0%

The annual income stream for this portfolio is approximately 4.8%, which is tough to replicate from similar maturities. It might be easiest to compare the holdings with the 10-year U.S. treasury, which is currently delivering in and around 3.5%. However, the depreciation in the 10-year treasury is close to -7 percentage points in 2009 already, hinting at a 2009 loss of -5.3%.

In contrast, the capital appreciation component of the above-highlighted bond portfolio is roughly +7%. Add this to the income stream of 2% in the first 5 months, and this bond portfolio is up an enviable 9% through the first 5 months of 2009.

Full Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company may hold positions in the ETFs, mutual funds and/or index funds mentioned above.