ETF Spotlight on Vanguard Extended Duration Treasury (NYSEARCA:EDV), part of a weekly series.
Assets: $302.7 million
Objective: Tracks the Barclays Capital U.S. Treasury STRIPS 20-30 Year Equal Par Bond Index
Holdings: 100% of this ETF is invested in Aaa-rated bonds
What You Should Know
- The expense ratio is 0.14%, which is touted on Vanguard’s site as being 85% lower than the average expense ratio of funds with similar holdings.
- This ETF is based on an optimized indexing strategy; this is often done with bond funds because the underlying indexes hold hundreds and even thousands of bonds. EDV has 52 holdings.
- “STRIPS” is an acronym: separate trading of registered interest and principal securities. STRIPS are bonds sold at a discount to their face value. Since they mature at par, there are no interest payments.
The Latest News
- As a result of market volatility and a desire for protection, investors poured $375 billion into bond funds last year and another $54 billion in the first two months of this year.
- All that safe-haven money is at risk as the economy recovers and interest rates rise; long-term bond funds are especially sensitive. Bond prices and yields have an inverse relationship.
- As with equity ETFs, bond ETFs can be used in conjunction with a trend following strategy: when a bond ETF moves above the 200-day, it’s a buy; when it drops below, it’s a sell.
- It’s suggested that investors should look at their bond portfolios like their equity portfolios. Don’t put all your eggs in one basket and be diversified across the yield curve.