Why ETFs Are a Better Way of Accessing the Bond Market

What’s better: individual bonds or bonds encased in exchange traded funds? There’s a real case to be made for indexing.

There are a few reasons that fixed-income assets do well when they are indexed, and the main focus is on relative returns. Ron Ryan, in a guest post for Index Universe, has five other reasons this structure is preferable:

• Asset Allocation. Bond index funds, Ryan says, are the best representation of the intended risk/reward of the fixed income asset class.
• Fees. The cost savings over time can add up when bonds are indexed; the fees to manage bond indexes are generally lower than those of active management.
• Tracking Error. ETFs generally have less tracking errors.
• Transparency. Returns are published daily; active managers generally only publish quarterly or monthly returns. Daily return publishing leads to fewer surprises later on.
• Cost Effective. The hire and fire mode of active management is costly, as asset managers are not cheap. By indexing bonds, this cost can be reduced. In that same vein, a bond ETF can also give investors wider exposure at a lower cost. To buy the kind of diversification one bond ETF can give would often be prohibitively expensive for most investors.

Comments

[baller:]

Some example bond ETFs would have been nice.

Aug 02 08:00 PM

[Uncle Larry:]

I own LQD. You might want to search on this ETF to find other articles that would compare Bond ETFs.

Aug 02 08:32 PM

[Tom Lydon:]

Here are a few bond ETFs to consider:
iShares GS $ InvesTopTM Corporate Bond Fund (LQD)
Vanguard Total Bond Market Index (BND)
iShares Barclays Aggregate Bond Fund (AGG).

Here is a link to various bond stories that could potentially help:
www.etftrends.com/cate.../



On Aug 02 08:00 PM baller wrote:

> Some example bond ETFs would have been nice.

Aug 03 03:49 PM