This article was originally published on ETFTrends.com.
With broadening fears of a protracted trade war with China, investors have been seeking safe havens like gold, bonds, and even potentially Bitcoin. As a result, over the past year, bonds have outperformed stocks, and are looking to continue their bullishness in at least the near term.
Over the past three months, the iShares 7-10 Year Treasury Bond ETF (IEF) gained 4.1% and iShares 20+ Year Treasury Bond ETF (TLT) rose 5.4% as yields on benchmark 10-year Treasury notes dropped down to 2.66% after reaching as high as 3.22% back in October.
“Bonds are doing there job as a stabilizer of portfolios…bonds have been the haven here, and the S&P has suffered a bit,” said Mike Santoli on CNBC. But he added, “It doesn’t mean it’s forward going, it doesn’t mean this is gonna stay.”
Investors who are looking at safe havens, and especially those seeking refuge in the treasury sector, might investigate the Vanguard Long-Term Treasury ETF (VGLT).
According to Vanguard, the Vanguard Long-Term Treasury ETF (VGLT) seeks to track the performance of a market-weighted government bond index with a long-term dollar-weighted average maturity. The fund employs an indexing investment approach designed to track the performance of the Bloomberg Barclays US Long Treasury Bond Index. This index includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds), with maturities greater than 10 years. Under normal circumstances, at least 80% of the fund's assets will be invested in bonds included in the index.
The ETF holds a variety of bonds, from 1 year to 30 years, with different yields and maturity dates, and has an average coupon of 3.3%. The goal of the ETF is to provide a high and sustainable level of current income by investing primarily in government bonds. The fund maintains a dollar-weighted average maturity of 10 to 25 years.
“On a one year basis, the S&P still holds a slight advantage [over bonds]. However, it you are talking stocks versus bonds, you have to look at total return, which includes interest and dividend payments, and on this basis, for the AGG, you have 6% on a one year basis, because of that income, the LQD, +7.8%, and you have about +6% on the S&P. So there you go: bonds have beaten stocks on a total return basis, on a one year basis, and by the way, with a much smoother ride,” Santoli explained on Tuesday.
For more fixed income news and strategy, visit our Fixed Income Channel.
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