|Bid||80.74 x 3100|
|Ask||80.75 x 1000|
|Day's Range||80.73 - 80.76|
|52 Week Range||78.61 - 81.19|
|PE Ratio (TTM)||N/A|
|YTD Daily Total Return||0.21%|
|Beta (5Y Monthly)||0.43|
|Expense Ratio (net)||0.07%|
Investors have poured a record $34.5 billion into fixed income ETFs in the first quarter, according to the Wall Street Journal. Chris Shuba, Helios Quantitative Research Founder & CEO, joins Seana Smith on 'The Ticker' to discuss reasons why investors believe active bond ETFs have a lot of merit.
While equities reeled early in the week, President Donald Trump declared, “I don’t watch the stock market,” contrary to his many tweets touting records set by the major indexes since he has been in the White House. “Jobs are what I watch,” he added, quite presciently, as it turned out, when the Department of Labor on Friday morning delivered boffo employment numbers for November. The headline unemployment rate ticked down a tenth, to 3.5%, the result of a rather tepid 83,000 increase in the separate survey of households and a smaller, 40,000 rise in the labor force.
Today’s low bond yields mean heightened interest-rate sensitivity. Time to search for funds that sacrifice a bit of yield for reduced risk.
Bond investors in China have a seemingly unquenchable thirst for government bonds, but the latest sell-off might appear that the well for sovereign debt has run dry. However, one market expert feels this is an opportune time to buy into Chinese debt for their attractive valuations.
While it’s still necessary to get core bond exposure if an investor’s portfolio is heavily tilted towards equities, it’s also important to keep duration in mind, especially if the investor’s primary goal is income generation.
Bond investors in China have a seemingly unquenchable thirst for government bonds, but the latest sell-off might appear that the well for sovereign debt has run dry. Per a Bloomberg report, the “yield on benchmark 10-year sovereign debt is up 20 basis points since a three-year low on Sept. 6, ranking it among the worst performers in Asia. BNP Paribas Asset Management’s Jean-Charles Sambor is optimistic about yuan-denominated debt and predicts that the 10-year yield will hit 3.1% by year’s end.
While it’s still necessary to get core bond exposure if an investor’s portfolio is heavily tilted towards equities, it’s also important to keep duration in mind, especially if the investor’s primary goal is income generation. In times like now where yields are low, income can be hard to come by, but rather than looking for debt issues with the highest yield at the expense of longer duration, market experts are warning investors to keep their duration exposure short. “If you’re going to buy bonds and you need income, I would keep your duration, [your] maturities, short or very medium short,” said Todd Morgan, chairman and CEO of Bel Air Investment Advisors.
Fixed income funds are aplenty in the ETF world, but in today’s market, it’s necessary to get strategic as opposed to simply throwing darts at a board of bond ETFs. A pair of ETFs an investor may want to consider for core as well as short-term exposure are the Vanguard Total Bond Market Index Fund ETF Shares (BND A) and the Vanguard Short-Term Bond Index Fund ETF Shares (BSV A).
A pair of ETFs an investor may want to consider for core as well as short-term exposure are the Vanguard Total Bond Market Index Fund ETF Shares (BND) and the Vanguard Short-Term Bond Index Fund ETF Shares (BSV) . BND gives investors that core bond exposure that spans across a variety of debt issues that fall within the investment-grade category. “So, I like this fund because it offers broad exposure to the U.S. investment-grade bond market,” said Alex Bryan, Morningstar's director of passive strategies research in North America.
A version of this article was published in the January 2019 issue of Morningstar ETFInvestor. Download a complimentary copy of Morningstar ETFInvestor by visiting the website. Sometimes investors lose sight as to why they're investing.
Most asset allocation calculators tout the benefits dedicating high percentages your portfolio to stocks for all but the most conservative investors. This is wonderful advice if you're comfortable with losing considerable capital during occasional down years. The S&P 500, including dividends, lost 4.23% in 2018 while in 2008 investors saw 36.55% of their U.S. stock portfolios vanish. Cash and short-term bond funds are ideal investment hedges for volatile markets. The fourth-quarter S&P 500 loss of 13.97% is a perfect example of why holding cash and short-term fixed income funds is the perfect salvo for a choppy market. The $57 billion December inflows into money market funds is a reminder not to overlook cash investments. * 5 Terrific Tech Stocks That Will Make You Forget About FANG A 100% allocation to an all-world stock fund such as the Vanguard Total World Stock ETF (NYSEARCA:VT) cost you -9.76% in 2018. Cushion that allocation with 65% invested in VT and 35% in fixed investment Vanguard Short-Term Bond ETF (NYSEARCA:BSV), and your 2018 loss declines to -5.88%. So, the 2018 BSV return of 1.34% cushioned the S&P 500's fall. InvestorPlace - Stock Market News, Stock Advice & Trading Tips ### Fixed Investment Funds to Calm Stock Market Volatility With rising interest rates, there are several options for higher fixed income yields. These investment hedges will help you sleep at night and shield your investments from excess volatility. Vanguard's Prime Money Market Fund (MUTF:VMMXX) will preserve the $1.00 share price and as of January 16, 2019, offers a 2.46% SEC yield. Should interest rates rise, so will the returns on this fund. The liquidity makes a money market mutual fund ideal for investors and seeking a hedge for investment market volatility. Another alternative, Schwab's Value Advantage Money Fund Investor Shares (MUTF:SWVXX) offers a 7-day yield of 2.32%. Despite their lack of glamour, a short-term bank certificate of deposit can provide a decent hedge to the stock market. Limelight, Sallie Mae, and Life Oak Banks all offer one-year CD rates of 2.85%. Traveling slightly up the fixed investing risk ladder, you can eek out higher yields. In exchange for higher yields, the following funds might deviate slightly from the $1.00 share price. The previously mentioned Vanguard Short-Term Bond ETF (NYSEARCA:BSV) tracks the performance of the Bloomberg Barclays U.S. 1- to 5-year government/credit float adjusted index. This market-weighted bond index covers U.S. Government and investment-grade corporate bonds with maturities from one to five years. The average duration is 2.6 years with a yield to maturity of 2.8%. With a 0.07% expense ratio, this fund is a low-cost alternative to owning individual bonds. The iShares iBonds Dec 2020 Term Corp ETF (NYSEARCA:IBDL) tracks the Bloomberg Barclays December 2020 Maturity Corporate Index. The index invests 90% of its assets in corporate bonds with maturity dates between December 31, 2019 and December 16, 2020. The 2.36% yield is competitive, and the short-term maturity dates suggests a stable share price. The 0.10% expense ratio makes IBDL an attractive low-cost short-term bond fund. If you're willing to withstand additional price volatility, the Vanguard Intermediate-Term Bond Index Inv (MUTF:VBIIX) offers a higher yield of 2.77%. This fund tracks Bloomberg's Barclays U.S. 5-10 Year Government Index and includes medium and larger issues of U.S. government and investment grade corporate bonds. With an average duration of 6.3 years, the share price will vary more than the prior fixed income choices. * 7 Stupidly Cheap Stocks to Buy Now The new Betterment Smart Saver option demonstrates the importance of a short-term fixed cash allocation. And, Schwab Intelligent Portfolio detractors, who complained about their cash allocation aren't saying too much right now. These past few months reminded investors that the stock market is risky and fixed investments can add comfort to the volatile equity market. As of this writing, the author held no positions in the aforementioned securities. ### More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Consumer Stocks to Buy for Income * 7 Dark Horse Stocks You Really Need to Look at for 2019 * 7 Retail Stocks to Buy for the Rise of Menswear Compare Brokers The post Risk-Averse Investment Hedges to Protect Yourself From Volatile Markets appeared first on InvestorPlace.