ETF Spotlight: Vanguard Extended Duration Treasury Fund

May.20.10 | About: Vanguard Extended (EDV)

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.

Disclosure: None