Is the Best Performing Bond ETF Really in Europe?


Despite low rates and a now more dovish Federal Reserve, investors continue to pile into fixed income ETFs. In fact, over the trailing one year period, fixed income funds have seen aggregate inflows exceeding $40 billion, including several billion to high yield and emerging market products.

A trend towards higher risk products is clearly brewing, even when taking into account some of the major risks that are pretty well-known in the space. However, this hasn’t been universal across all of the risky bonds, as some, and in particular the Italian bond ETFs, haven’t seen a boost in interest from investors.

Instead, the two products tracking mid-term Italian debt, the DB Italian Treasury Bond Futures ETN (ITLY) and the DB 3x Italian Treasury Bond Futures ETN (ITLT) have seen outflows over the past 52 weeks. The two have combined to experience over $70 million in outflows in the trailing year, enough to put them into the bottom 15 for all the products that have been around for all of the time period in question (see 7 Biggest Bond ETFs by AUM).

This continued lack of interest, even with the desire for higher risk bonds, has left ITLT and ITLY with less than $20 million in total combined assets, making them some of the least popular bond ETFs out there. Part of this reason for the lack of popularity is undoubtedly the ETN structure, while another large chunk has to be due to the plethora of negative press that has been afflicting the Italian fiscal situation as of late.

Many had thought that the Italian economy was staring into the abyss and doomed to fall in shortly after its counterparts in Spain, Greece, and Portugal. As we have seen in recent months, however, this has not been the case as Europe has broadly taken a step back from another financial catastrophe.

Thanks to this, bond rates across the region plummeted over the course of the year with Italian securities being no exception. Rates for benchmark 10 year Italian bonds fell from a high of 6.6% all the way down to 4.5% to start 2013.

They haven’t stopped falling just because the calendar turned either, as rates are now below the 4.2% for Italian government bonds, marking a huge reversal for the country’s debt (see Italian Bond ETFs: High Risk High Reward).

This situation has been an absolute boon to those who were smart or lucky enough to get in on the space when bonds were trading at elevated levels. As while income levels have fallen, this has boosted prices beyond most investors’ wildest dreams in recent trading, leaving those few in ITLT or ITLY with enormous gains over the past year.

This comes out to roughly a 23% gain for ITLY and over 78% for the 3x leveraged version of the ETN, ITLT. While these are impressive on their own—more than doubling the S&P 500 in the time period—they thoroughly crush broad bond benchmarks as well.

If one compares ITLY to any of the U.S. government debt focused ETFs, not a single one—unleveraged or leveraged—can come within 1,000 basis points of ITLY’s return over the past year.

Instead, TYD has done the best from a leverage look (adding 5.8%), while the mid-term funds like TENZ and IEF only managed to put up a paltry 2% in the time frame (also read 3 Actively Managed Bond ETFs for Stability and Income).

So despite all the doom and gloom in the European bond market in early 2012, it didn’t really materialize into losses for ITLY and ITLT during the last 52 weeks. If anything, the concerns only helped to make the recent comeback all the more spectacular and all the more broad bond crushing.

Still, it is worth pointing out that both ITLY and ITLT are more expensive than many other products out there, thanks to their somewhat exotic exposure and their ETN structure. The weak AUM levels for both also helps to keep bid ask spreads relatively wide, so this increases the total costs for those seeking to trade the segment frequently.

Yet even with this downside, both of the Italian products have crushed the market and expectations over the past year by a pretty wide margin. The recent run has been epic though, so you need to be truly bullish on Europe before considering a new allocation to the space at this time (also read AGG vs. BND: Which Bond ETF Do You Choose?).

This underreported and under recognized story also shows us another important fact about bonds, and ETFs in general. Even with broad doom over the space, there is always a bull market somewhere, and that more often than not, there is an exchange-traded product to play the trend.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Follow @Eric Dutram on Twitter

Read the analyst report on ITLT

Read the analyst report on ITLY

Read the analyst report on TENZ

Read the analyst report on IEF

Read the analyst report on TYD

Zacks Investment Research

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

More From


View Comments (0)

Recommended for You

  • Tycoon buys 30 Rolls-Royces for Macau hotel

    A Hong Kong tycoon has placed the biggest ever order for Rolls-Royce cars, agreeing to buy 30 Phantoms to chauffeur guests at a luxury resort he's building in the global gambling capital of Macau. Stephen Hung's $20 million purchase surpasses the 14 Phantoms bought by Hong Kong's Peninsula Hotel in…

    Associated Press
  • 1 Tip To Lose Belly Fat

    It's Hollywood's Hottest Diet And Gets Rid Of Stubborn Fat Areas Like Nothing Else.

  • Before You Buy Alibaba, Check Out 4 Top China Stocks

    Before You Buy Alibaba, Check Out 4 Top China Stocks While investors gear up for Alibaba Group 's (BABA) hotly anticipated initial public offering, don't forget about other Chinese stocks that are worth keeping an eye on. Today's Young Guns Screen of

    Investor's Business Daily
  • Tycoon's arrest sends shock wave through Russia

    Tycoon's arrest sends shock wave through Russia MOSCOW (AP) — The arrest of a Russian telecoms and oil tycoon has sent shock waves through the country's business community, with some fearing a return to the dark days of a decade ago, when the Kremlin asserted its power by imprisoning the country's…

    Associated Press
  • "The Retiree Next Door": How successful retirees stretch their savings

    "The Retiree Next Door": How successful retirees stretch their savingsBy the time she hit her late 40s, Toni Eugenia wasn’t sure she would ever be able to retire. Eugenia, 56, a pharmacy technician who lived in Houston, was nearly $200,000 in debt and

    Yahoo Finance
  • Costco Stores in Canada to Stop Taking American Express

    “The credit card relationship between American Express and Costco Wholesale Canada will not be renewed when it expires” on Dec. 31, the company said today in an e-mail to Canadian customers. The message was attributed to Lorelle Gilpin, vice president of marketing and membership for Costco…

  • CNBC Anchor Calls Out Fed-Hater Bill Fleckenstein In Startling Shouting Match

    CNBC Bill Fleckenstein of Fleckenstein Capital appeared on CNBC's Futures Now program on Tuesday. Futures Now host Jackie DeAngelis came out swinging, asking Fleckenstein right at the top if he was willing to admit that he had misunderstood monetary policy. Sounding taken aback, Fleckenstein…

    Business Insider
  • Beanie Babies creator's sentence debated in court

    Beanie Babies creator's sentence debated in court CHICAGO (AP) — Federal prosecutors seeking to put the billionaire creator of Beanie Babies in prison for hiding millions in Swiss bank accounts told appellate court judges Wednesday that the toymaker's sentence of probation threatens to erode the…

    Associated Press
  • AARP® Auto Insurance Program from The Hartford

    50+? Request a free quote and you could save $404* on Auto Insurance from The Hartford!

    AdChoicesThe HartfordSponsored
  • Gilead Stock Is Falling On These Drug Setbacks

    Gilead Stock Is Falling On These Drug Setbacks Gilead Sciences (GILD) shares are backsliding Wednesday on news that the patient drop-out rate for hepatitis C drug Sovaldi is quadruple that of clinical trials. In addition, the biotech's Phase 2 study results

    Investor's Business Daily
  • Play

    Citi, Bank of America Offer Discounted Mortgages

    Citigroup and Bank of America will offer mortgages at discounted interest rates to help borrowers with low incomes or subprime credit. AnnaMaria Andriotis joins MoneyBeat. Photo: Getty.

    WSJ Live
  • Margaritaville casino owners seek bankruptcy

    The owner of Biloxi's Margaritaville casino has filed for Chapter 11 bankruptcy protection Tuesday, only hours before a hearing where the landlord aimed to seize the property. The filing by MVB Holding LLC in U.S. Don Dornan, a lawyer for landlord Clay Point LLC, said the company had planned to ask…

    Associated Press
  • Apple to unveil new iPads, operating system on Oct. 21 : report

    The company plans to unveil the sixth generation of its iPad and the third edition of the iPad mini, as well as its operating system OS X Yosemite, which has undergone a complete visual overhaul, the Internet news website said. Trudy Muller, a spokeswoman for Apple, declined to comment. The iPad is…

  • Here's What Mark Cuban Wishes He Knew About Money In His 20s

    Cuban is the owner of the Dallas Mavericks basketball team. Billionaire investor and entrepreneur Mark Cuban is generous with his advice. When we asked him what he wishes he'd known about money in his 20s, he said:

    Business Insider
  • Don't care about Alibaba? Here's why it may matter

    When the Alibaba Group Holding prices its initial public offering Thursday, small businesses in particular will be watching. Founder Jack Ma -the former English-teacher-turned-dot-com billionaire-has touted his e-commerce platform as a way for smaller merchants to expand their international…

  • Best Womens Wrinkle Creams 2014

    Mom reveals simple wrinkle solution that has researchers very excited. Try this free solution today to look and feel years younger.

  • SHOE COMPANY: Our CEO Just Disappeared And Most Of The Money Is Gone

    "and like that: he's gone." This is an actual headline from a company press release: "CEO and COO disappeared, most of the company's cash missing." (Via FastFT) In a statement, German-based shoe company Ultrasonic said its CFO,  Chi Kwong Clifford Chan, has been unable to reach the company's CEO,…

    Business Insider
  • Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More

    Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More Stocks were firm on Wednesday morning ahead of the FOMC meeting outcome. Tuesday’s rally may have sparked higher interest again, and investors are looking for bargains

    24/7 Wall St.
  • Play

    Hilsenrath: Fed Still Sees 2015 for Rate Increase

    WSJ's Jon Hilsenrath discusses the Federal Reserve's decision to hold steady on interest rates, but the central bank foresees a rate increase by early 2015. Photo: Getty.

    WSJ Live
  • Boeing may have outfoxed Musk, but it could have bigger problems

    Elon Musk is arguably one of the greatest entrepreneurial minds of the 21st Century, but he was outsized an old school aerospace giant. Boeing won the bulk of NASA’s contract for a space taxi.  One of the other companies vying for the deal is SpaceX, the company headed by Tesla’s Musk, will get a…

    Talking Numbers
  • Don't buy Alibaba stock: 'Dean of Valuation'

    Investors should steer clear of Alibaba , valuation expert Aswath Damodaran said Wednesday. On CNBC's " Fast Money ," Damodaran, a professor of finance at New York University's Stern School of Business, noted that he was looking at Alibaba stock from the perspective of a long-term investor, not a…

  • Billionaire Investor Says Chinese People Work Harder And Western Companies Could Face Deep Trouble After Alibaba IPO

    Michael Moritz, the chairman of VC firm Sequoia Capital, is a huge fan of Chinese internet companies and reiterated his enthusiasm for the Chinese market in an interview with The Wall Street Journal Wednesday. The billionaire investor described the Alibaba IPO as a “major landmark event” that is as…

    Business Insider
  • Take Your Career in Law to the Next Level!

    Earn an accredited Master of Laws in only 1 year. 100% online, No LSAT required, and 5 concentrations offered, including Taxation Law. Apply today!

    AdChoicesThomas Jefferson Law Sponsored
  • Play

    Top Starter Funds for Investors on a Shoestring

    Morningstar's Christine Benz highlights some of her favorite ETFs and low-minimum-investment funds for new investors.