The investment markets have some areas on the outskirts of town well off the beaten path and for those who really want to use the markets as a way to accumulate long-term wealth, going to these lesser known areas of town is the path to sustained growth.
No, I’m not talking about penny stocks, small-cap stocks, or forex. Although these products have a place in some portfolios only small exposure to these sectors is appropriate for most income investors or those who are using the market as a retirement vehicle.
The area of the market I want you to explore are bond ETFs. They aren’t all that exciting to watch but if you want the safety of bonds but you like staying on the equity exchanges, bond ETFs are a great way for income investors to bring in significant long-term income without the volatility of high beta stocks.
There are currently more than 200 exchange traded products related to bonds available to the investor and of those, I’ve picked three that I like. There are many others that are fine choices to explore but these are a few of my favorites.
BlackRock Corporate High Yield Fund VI (NYSE:HYT)
Although the BlackRock Corporate High Yield Fund VI is not an exchange traded fund by technical definition, it functions as one but because it’s a closed end fund there isn’t an infinite amount of shares available as there are in most mutual funds. If you read its SEC filings, you’ll find that the bulk of the investments are in high-yielding corporate bonds of all ratings types and hedged with credit default swaps and mortgage backed securities. Because it’s a high yield bond fund, you’ll need to keep HYT on a short leash - but the 8.25% dividend makes the added work you do on this fund well worth your time.
IShares iBoxx $ Investment Grade Corporate Bond Fund (NYSEARCA:LQD)
This fund tracks the performance of the iBoxx $ Liquid Investment Grade Index, an index that tracks the performance of 600 highly liquid investment grade corporate bonds. You’ll find names like AT&T (NYSE:T), Wells Fargo (NYSE:WFC), and Walmart (NYSE:WMT) as top holdings in this fund. With an expense ratio of only 15 basis points and a dividend yield of 4.6%, this fund is perfect for a retirement fund of somebody who is getting close to retirement, but it also has a place in younger portfolios as a staple name.
As with all exchange traded names, you should set a conservative stop to decrease your exposure to any type of market meltdown like we saw in 2008.
JPMorgan USD Emerging Markets Bond Fund (NYSEARCA:EMB)
For those looking for international exposure that doesn’t include the currently broken eurozone, the JP Morgan U.S. Dollar Emerging Markets Bond Fund offers diversified exposure to countries ranging from Bulgaria to Iraq and Russia. In total, there are 98 positions in this fund, most of which include exposure to fascinating potential growth stories around the world. Expenses come in at 60 basis points but with a yield of 5.1% and a 3-year return of more than 10%, this is definitely a fund to consider for those wanting to put money to work outside of the United States.
For income investors who are looking to balance their portfolio with bonds but prefer to stay with exchange traded products, these three bond funds are worth some detailed analysis and generally speaking, heading over to this often overlooked area of the investing world is in your portfolio’s best interest. Anything that trades on an exchange needs a stop in place. A stop is free, it only takes a second to set up and it protects your money.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.