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Play These Bond ETFs to Keep the Coronavirus Fear at Bay

Sweta Jaiswal, FRM

Coronavirus has worsened into a world-wide epidemic scare with the death toll rising to 213 along with 9,692 confirmed cases. Moreover, around 102,427 cases are under closed monitoring. The World Health Organization (WHO) declared the deadly coronavirus eruption as a global emergency. This outbreak also gripped markets, dragging all major U.S. indices down from record highs.

Going by past epidemics, analysts believe that there are chances of more decline in the markets. This downtrend in equity markets can make investors jittery, adding to the lure of the bond ETFs.  Moreover, total cases registered during the SARS epidemic in China are now surpassed by the coronavirus eruption (read: 5 ETFs to Protect Your Portfolio From Coronavirus Threat).

Globally, confirmed cases have so far been reported from around 22 countries including the United Arab Emirates, the United Kingdom, Germany, Hong Kong, Australia, Malaysia, Thailand, France, India, Philippines, Japan, Taiwan, Vietnam, Singapore, South Korea, Macao and Nepal with the epicenter in Wuhan, China.The contagious coronavirus is sparking fears of global economic slowdown among investors.

Per investment bank Goldman Sachs, this deadly coronavirus endemic will affect China’s economic growth by 0.4% in 2020. It also anticipates that first-quarter 2020 economic growth in the United States will be dented by 0.4% on account of lower exports and tourism. Moreover, the outbreak is disturbing the global supply chain for the technology companies. This is because China has been a major manufacturer and supplier for many technology players in the United States.Major retailers, restaurants and hotels  in the United States, which earn a large portion of revenues from operations in China, are expected to suffer huge blows (read: Will Consumer Discretionary ETFs Suffer the Coronavirus Blow?).

Should You Opt for Bond ETFs?

In 2019, the Sino-US trade ambiguity, rising Middle East tensions, uncertainty in market conditions due to geopolitical tensions, slowdown in the global economy and Brexit woes added stimulus to the temptation of bond ETFs. In fact, 51% of the net cash flows into U.S.-based exchange-traded funds were invested in fixed-income assets. The rapidly-aggravating concerns regarding the plaguing coronavirus are making high-yielding fixed-income investments attractive.  

Against this backdrop, we discuss a few bond ETFs, which can help investors cash in on the escalating global tensions.

iShares Core U.S. Aggregate Bond ETF AGG

The fund provides broad exposure to U.S. investment-grade bonds and tracks the Bloomberg Barclays US Aggregate Bond Index  (read: 10 ETFs That Have Been Investors' Favorites).

AUM: $72.42 billion

Expense Ratio: 0.05%

Past-year Return: 7.1%

Vanguard Total Bond Market ETF BND

The fund provides broad exposure to U.S. investment grade bonds and tracks the  Bloomberg Barclays U.S. Aggregate Float Adjusted Index (read: Most Loved and Hated ETFs of 2019).

AUM: $51.10 billion

Expense Ratio: 0.04%

Past-year Return: 6.7%

iShares iBoxx $ Investment Grade Corporate Bond ETF LQD

The fund provides exposure to a broad range of U.S. investment grade corporate bonds and tracks the Markit iBoxx USD Liquid Investment Grade Index (read: Top ETF Stories of 2019 & Picks for 2020).

AUM: $35.22 billion

Expense Ratio: 0.15%

Past-year Return: 12.9%

Vanguard Intermediate-Term Corporate Bond ETF VCIT

The fund seeks to provide a moderate and sustainable level of current income. It invests primarily in investment-grade corporate bonds and tracks the Bloomberg Barclays U.S. 5-10 Year Corporate Bond Index.

AUM: $27.91 billion

Expense Ratio: 0.05%

Past-year Return: 10.1%

Vanguard Long-Term Treasury ETF VGLT

VGLT tracks the Bloomberg Barclays U.S. Long Treasury Bond Index. The fund seeks a high and sustainable level of current income through investment in government bonds.

AUM: $1.71 billion

Expense Ratio: 0.05%

Past-year Return: 18%

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Vanguard Long-Term Treasury ETF (VGLT): ETF Research Reports
 
Vanguard Total Bond Market ETF (BND): ETF Research Reports
 
iShares Core U.S. Aggregate Bond ETF (AGG): ETF Research Reports
 
iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD): ETF Research Reports
 
Vanguard Intermediate-Term Corporate Bond ETF (VCIT): ETF Research Reports
 
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