Must-know: Why expense ratios have affected TLT and MUB

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Must-know: Important costs involved in owning an ETF (Part 4 of 5)

(Continued from Part 3)

TLT and MUB

The set of ETFs that we’ve considered here consists of TLT and MUB, as shown in the following table. The 20+ Year Treasury Bond ETF (TLT) tracks an index that measures the performance of U.S. Treasury securities that have a remaining maturity of at least 20 years. MUB, the iShares National AMT-Free Muni Bond ETF, tracks an index that measures the performance of the investment-grade segment of the U.S. municipal bond market.

We note that net or effective returns (that is, returns after expenses) fall to 7.95% versus perceived returns of 8.44% for TLT for the past three years. For MUB, a 5.07% return for the past three years became 4.29%. For the past five years, returns declined to 3.08% from 3.86% for TLT, while for MUB, they fell to 3.30% from 4.60%.

The set of ETFs that we’ve considered above consists of HYD and SJNK. HYD, the Market Vectors High Yield Municipal Index ETF, tracks an index that has a 25% weighting in investment-grade triple-B bonds and a 75% weighting in non–investment-grade bonds. The SPDR Barclays Capital Short Term High Yield Bond ETF (SJNK) tracks an index that includes short-term publicly issued U.S. dollar–denominated high yield corporate bonds.

We note that net or effective returns (that is, returns after expenses) fall to 5.54% versus perceived returns of 8.45% for HYD for the past three years. For SJNK, 0.06% returns for the past one year eat away the entire return and even post a negative return of 0.34%. Figures for three and five years aren’t available for this fund.

Continue to Part 5

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