Fixed Income ETF

By: EconomyWatch   Date: 3 August 2009

About The Author

EconomyWatch

The core Content Team our economy, industry, investing and personal finance reference articles.

EconomyWatch, Content Team

 

  • Dot Div
  •      

A fixed Income ETF invests in such commodities and assets that maintain a constant return on investment. Fixed income in financial terms means any security that pays a constant income till the time of maturity when the principal amount is returned.

 

Though fixed income ETFs yield lower profits than other ETFs, a trader can be assured of the returns and can invest in them to hedge his losses.

 

How Do Fixed Income ETFs Work?
 

The first step to creating a fixed income ETF is to identify the commodities and investment options that are least effected by the volatility of the financial market. Bonds, in such cases, are the ideal underlying assets and sponsors identify the best bonds to invest in.

 

Bonds are of various types, namely:

  • Federal government bonds

  • State or local government bonds

  • Corporate bonds

 

Popular Fixed Income ETFs
 

Although there are many fixed income ETFs, primarily bond ETFs, the most popular and consistently performing fixed income ETFs as of mid 2009 were:

  • AGG iShares Lehman Aggregate Bond Fund

  • BND Vanguard Total Bond Market

  • BSV Vanguard Short-Term Bond

  • CFT iShares Barclays Credit Bond Fund

  • CIU iShares Lehman Intermediate Credit Bond Fund

  • CSJ iShares Lehman 1-3 Year Credit Bond Fund

  • MBB iShares Lehman MBS Fixed Rate Bond Fund

  • MUB iShares S&P National Municipal Bond Fund

  • PVI PowerShares VRDO Tax-Free Weekly Portfolio

  • PZA PowerShares Insured National Municipal Bond Portfolio

  • SHM SPDR Lehman Short Term Municipal Bond ETF

  • SHV iShares Lehman Short Treasury Bond Fund

  • SHY 1-3 Year Treasury Bond Fund (Leh) iShares

 

Advantages of Fixed Income ETFs
 

Investing in fixed income ETFs is better than investing in other actively managed investments because of many reasons, such as:

  • They offer tight bid-ask spreads, thus have more margins for profits.

  • They have low expense ratios and can be used along with a rather aggressive trading strategy.  

Disadvantages of Fixed Income ETFs  

Fixed income ETFs require management fees and have the following disadvantages:

  • They don’t offer any flexibility of creating the portfolio.

  • They are less liquid than other ETFs.

 

Fixed income ETFs offer good diversification and are popular with trader with aggressive portfolios.

 

 


  • Dot Div
  •      

Most Popular in Exchange Traded Funds

Related Links
blog comments powered by Disqus