Long term bonds have been the topic of considerable debate over the last few years. As central banks around the world have printed money and pushed interest rates to record lows, many investors have suspected that a “bubble” in this market is forming. Because long-term fixed income is sensitive to changes in interest rates hikes, the theory has been that the inevitable uptick in inflation will send prices tumbling. But so far, interest rates have shown no signs of climbing, and long-term bonds have produced stellar returns and continue to offer up some quality dividend yield opportunities [see also Monthly Dividend ETFdb Portfolio]:
1. Vanguard Extended Duration Treasury ETF (EDV)
This unique ETF looks to follow the Barclays U.S. Treasury STRIPS Index, which measures the returns of STRIP investments with a 20 to 30 year maturity. A treasury STRIP is a principal payment on a US Treasury security that has been stripped into separately tradable components, which leads to a highly diversified basket of funds to bet on. This fund’s 30-day SEC Yield currently stands at 2.97%, offering investors an opportunity to tap into a high-quality current income source. With almost $165 million in total assets and an expense ratio of only 0.13%, it’s quite clear that many have already embraced this ETF as a viable way to generate yield without taking on much risk [see also Vanguard Launches Short Term TIPS ETF].
2. Vangaurd Long-Term Corporate Bond Index Fund (VCLT)
VCLT focuses on U.S. industrial, utility, and financial companies that issue investment grade bonds that have more than 10 years to maturity. This ETF is not only great for investors looking to avoid volatile swings that are associated with lower-quality bonds, but with a current 30-day SEC Yield of 4.24%, this fund offers a distribution that is hard to pass up for income-hungry investors. With a portfolio totaling over 1,000 individual bonds, and less than 10% of assets going to the top ten holdings, it’s no wonder that many have embraced VCLT for its excellent balance; since launching in late 2009, this fund has managed to accumulate close to $1.2 billion in assets under management [see also 12 High-Yielding Monthly Distribution Bond ETFs].
3. State Street SPDR Barclays Capital Long Term Corporate Bond ETF (LWC)
The only international corporate bond ETF to make the cut, this fund shares many similarities with VCLT, including its focus on debt notes from the industrial, utility, and financial sectors that don’t mature for at least 10 years. While the U.S. does make up the overwhelming majority of the fund, accounting for well over three-quarters of total assets, a number of foreign issuers can also be spotted in the fund’s top ten holdings. LWC holds over 1,200 securities and features an average duration of approximately 14 years along with an average maturity of 24 years. With over $135 million in assets under management and a 30-day SEC yield of 4.15%, this ETF offers a compelling strategy for investors looking to bring geographic diversity to their fixed-income component while still retaining their home country bias [see also Bond ETFs For Every Objective].
Disclosure: No positions at time of writing.