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5 Thematic ETFs for Fixed-Income Investors

Todd Shriber

Whether it is an ETF dedicated to 5G, cannabis, electric vehicles or small-cap biotechnology stocks, there are a growing number of thematic funds on the market. Predictably, however, the vast majority of thematic ETFs are equity-based products.

On the other hand, many of the largest fixed-income ETFs are basic in their approaches and methodologies, doing little more than offering income via cap-weighted avenues to government, corporate and municipal bonds.

This is not surprising. While many of the best ETFs in the equity space are rooted in alternative methodologies and have been that way for some time, it was not until the past several years that bond funds appeared with unique ideas and narrower focuses.

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While the universe of thematic bond funds still has plenty of room to expand, some of the best ETFs in the fixed income space have surprisingly narrow focuses. Here are some of the best ETFs for adventurous bond investors looking for higher levels of income and potentially stronger total returns.


VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL)

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Expense ratio: 0.35% per year, or $35 on a $10,000 investment.

The VanEck Vectors Fallen Angel High Yield Bond ETF (NYSEARCA:ANGL) is one of the best ETFs for junk bond investors to consider. ANGL is the largest and oldest ETF dedicated to fallen angels, those corporate bonds born with investment-grade ratings that are later downgraded to junk status. Fallen angels are not a new concept in the corporate bond universe and the idea of investing in these bonds is widely accepted in some circles, so ANGL is not a quirky thematic fund addressing an excessively narrow niche.

For corporate-bond investors, ANGL has been one of the best ETFs in recent years. Over the past 36 months, the fallen angel fund is up 25.60%, beating the largest junk bond ETF by 600 basis points while offering better than double the returns of the biggest investment-grade corporate bond ETF. Additional data points support the idea of ANGL has one of the best ETF for long-term investors.

“Fallen angels have outperformed the broad high yield bond market in 11 of the last 15 calendar years,” according to VanEck.

Nearly 89% of ANGL’s holdings are rated BB and B.


VanEck Vectors Green Bond ETF (GRNB)

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Expense ratio: 0.30%

The VanEck Vectors Green Bond ETF (NYSEARCA:GRNB) is one of the best ETFs for bond investors looking to express environmental virtue and this fund fits the bill as a thematic because green bonds are a small but growing sliver of the massive bond market.

While some thematic funds have complex underlying investment objectives, GRNB is one of the best ETFs in the thematic fixed income arena because it is easy for investors of varying skill levels to understand. Put simply, green bonds are debt issued by companies and governments to finance environmentally friendly projects.

GRNB is also one of the best ETFs for conservative fixed-income investors because the fund is not high-yield and its credit risk is relatively benign. This bond fund has an effective duration of 6.41 years and over two-thirds of its 188 holdings are rated AAA, AA or A.


Inspire Corporate Bond Impact ETF (IBD)

Intermediate-term bonds

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Expense ratio: 0.61%

For investors looking for a religious-based approach to bonds, the Inspire Corporate Bond Impact ETF (NYSEARCA:IBD) is one of the best ETFs. In fact, IBD, which debuted nearly two years ago, is the first faith-based fixed income ETF.

“IBD invests in higher credit quality, investment grade fixed income securities of some of the most inspiring, biblically aligned large companies in the United States, as measured by the companies’ Inspire Impact Score,” according to the issuer.

This fund only invests in investment-grade issues from companies with market values of at least $5 billion. Additionally, the issuer donates half the management fees from IBD to various causes, which last year included pro-life groups, baby rescue missions and Syrian refugee groups.

With nearly $113 million in assets under management, IBD has been one of the best ETFs in the niche bond fund space in terms of being a pleasant surprise regarding its ability to add assets. The fund holds almost 170 bonds and yields over 3%.


Xtrackers Municipal Infrastructure Revenue Bond ETF (RVNU)

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Expense ratio: 0.15%

It is somewhat of a stretch to call the Xtrackers Municipal Infrastructure Revenue Bond ETF (NYSEARCA:RVNU) a thematic fund, but is one of the best ETFs for investors looking for a refreshed approach to traditional municipal bond funds.

While many municipal bond funds focus on a variety of muni debt, RVNU is dedicated solely to infrastructure revenue bonds. That may not seem like a positive trait when the economy is good, allowing many states to obfuscate badly underfunded public pension plans, but in the event of another recession, concerns about the shaky ground on which state pension plans reside are likely to resurface.

That is bad news for general obligation debt, which could be downgraded if states’ finances deteriorate, but RVNU does not hold general obligation bonds. Credit risk is minimal with this fund as highlighted by about 92% of its issues carrying AAA, AA or A ratings. RVNU yields nearly 25 basis points more than the largest traditional municipal bond ETF.


Cambria Sovereign Bond ETF (SOVB)

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Expense ratio: 0.59%

The Cambria Sovereign Bond ETF (CBOE:SOVB) is one of the best ETFs for investors looking for a wide-ranging approach to sovereign debt. Many bond funds do not mix developed and emerging markets bonds, but SOVB is geographically agnostic.

Rather than adhering to geographic borders, SOVB’s objective is simple: “the strategy seeks the most attractively priced debt securities from a global opportunity set,” according to Cambria.

At the end of the first quarter, eight of SOVB’s top 10 country exposures were emerging markets, but some of that risk is mitigated by exposure to AAA-rated U.S. and Australian bonds. Nearly 84% of SOVB’s holdings have maturities of less than five years or five to 10 years.

SOVB is also one of the best ETFs for investors looking for active management, which can work in the global bond arena. An actively managed fund such as this can look for better credit or duration opportunities as well as ditch bonds from countries with deteriorating credit quality.

Todd Shriber does not own any of the aforementioned securities.

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