Bond ETFs Turn 10

Includes: IEF, LQD, SHY, TLT
by: Michael Johnston

By Daniela Pylypczak

Since SPY made its debut as the first exchange-traded fund in 1993, the ETF industry has sure come a long way with its lineup of over 1,400 products now available to all walks of investors. From plain vanilla funds to the more complex and intriguing funds like the new “Random Roger” ETF (RRGR), traders and investors alike can now access virtually every corner of the investable universe. Although there are numerous new funds already in the pipeline, taking a step back and looking at the performance and resilience of some of the “older” ETFs paints a vivid picture of just how far the industry has come.

This month marks the 10-year anniversary of four bond ETFs from one of the oldest and most successful issuers in the industry: iShares. Since July of 2002, iShares’ government bond ETFs, IEF, TLT, and SHY, along with its corporate bond fund LQD, have quickly established themselves as some of the most popular and useful investment vehicles available on the market. Combined, these funds have accumulated over $41.6 billion and counting in total assets over the last 10 years.

Below we highlight four iShares’ bond ETFs celebrating their 10th anniversary:

Ticker Name Total Assets Returns Since Inception*
IEF Barclays 7-10 Year Treasury Bond Fund $4.95 billion 6.7%
LQD iBoxx $ Investment Grade Corporate Bond Fund $23.10 billion 6.5%
TLT Barclays 20 Year Treasury Bond Fund $3.56 billion 8.9%
SHY Barclays 1-3 Year Treasury Bond Fund $9.89 billion 2.8%

*As of 6/30/2012

Barclays 7-10 Year Treasury Bond Fund

Since IEF's inception in July of 2002, this ultra popular bond fund has become one of the staples in many investors’ long-term portfolios. The fund invests in U.S Treasury securities with a remaining maturity between seven to 10 years. Although the longer dated maturities expose investors to slightly higher levels of interest risk, IEF often delivers a higher income than short-term products such as SHY or even IEI. The fund’s utter simplicity and effectiveness combined with its low cost of just 15 basis points, has allowed it to accumulate almost $5 billion in total assets thus far.

iBoxx $ Investment Grade Corporate Bond Fund

iShares’ LQD sits in the ranks of the top 10 largest ETFs available on the market, whose combined total accounts for nearly 35% of the entire industry. This ETF is by far the most popular option for investors looking to gain exposure to investment grade corporate bonds. The cleverly named ticker symbol sheds light on two of the fund’s most appealing features: LQD invests in over 800 of the most liquid investment grade corporate bonds and its shares exchange hands over 1.8 million times a day. The fund has accumulated about $23 billion in total assets under management since its debut in 2002 [see also 10 Surprising ETF Stats From Mid Year ETF Data].

It’s interesting to note that LQD has lagged behind products such as TLT and IEF since its inception–a fact that highlights the impressive performance of government bonds over the last several years.

Barclays 20 Year Treasury Bond Fund

For 10 years now, investors have been using this ultra popular fund as a tactical “tilt” in their portfolios. TLT invests in U.S. Treasury securities that have a remaining maturity of at least 20 years, making it a useful tool for those looking to extend the duration of the fixed income component in their portfolios. TLT’s practicality and appeal among investors makes it one of the most heavily traded government bond ETFs on the market: TLT has an average daily trading volume of just under 8.5 million shares [see 17 ETFs For Day Traders].

TLT has delivered close to 10% annually to investors over the past decade, an impressive figure given the concentration in traditionally “risk free” U.S. Treasuries.

Barclays 1-3 Year Treasury Bond Fund

Contrary to what the ticker symbol may imply, this ETF has been able to maintain a bold presence in the financial world over the past decade. SHY offers investors exposure to the short end of the maturity curve, focusing on U.S. Treasury securities with less than three years to maturity. The fund’s short-term focus makes it a useful tactical tool for investors looking to minimize both credit and interest rate risk. SHY’s usefulness and incredibly low cost has made it one of the largest government bond ETFs available on the market: over the last 10 years, the fund has amassed just under $10 billion in total assets under management.

Disclosure: No positions at time of writing.

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