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Don’t Write Off Bond ETFs in Bull Environment

editor@etftrends.com (ETF Trends)

While many have been focused on the ongoing rally in the equities market, the month of August showed that risks can often suddenly strike and destabilize a market, so investors should still keep a handle on bond exchange traded funds to mitigate the swings. While the average diversified U.S. stock fund showed a negative total return of 0.4% for August, bond investors generated a positive 0.7% gain for funds focused on intermediate maturity, investment-grade debt, the Wall Street Journal Reports. "We see T-bills as a useful gauge for potential market anxiety," BlackRock strategists, led by Richard Turnill, said in a research note. "We favor equity and fixed income segments tied to the sustained global economic expansion, and advocate some allocation to long-dated government bonds as a buffer against equity market sell-offs." U.S. Treasury yields have touched their lowest level year-to-date amid geopolitical tensions, such as the saber rattling between North Korea and the U.S. Political risk has since quieted down, but BlackRock warned that risks could spike again in December when the government revisits its fiscal cliff and lawmakers confront the debt limit and government funding. Related: Treasury ETFs Still Have a Place in a Diversified Portfolio Consequently, ETF investors can target various U.S. government bonds to help hedge against the risks. There are a number of Treasury bond ETF options with varying maturities like the iShares 1-3 Year Treasury Bond ETF (SHY) , iShares 7-10 Year Treasury Bond ETF (IEF) and iShares 20+ Year Treasury Bond ETF (TLT) . ETF investors may also consider investment-grade corporate debt, such as the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) , to capitalize on a stronger corporate America and more attractive yield opportunities. "Stronger growth favors credit over Treasuries," according to BlackRock. "We generally prefer up-in-quality exposures and investment-grade bonds due to elevated credit market valuations." For more information on the fixed-income market, visit our bond ETFs category . Read more on ETFtrends.com