In this article, we discuss the 10 best bond ETFs to buy now. If you want to see more ETFs that would make great selections, click 5 Best Bond ETFs to Buy Now.
Bond exchange traded funds exclusively or largely invest in bonds. These ETFs offer investors passive exposure to the bond market, with a range of categories such as treasuries, corporates, convertibles, leveraged, junk, and floating rate bonds. Most bond ETFs pay out monthly dividends, which is often attractive for income investors.
Amid the rising rates and record-high inflation, investors are pouring into bonds as a safe haven. Treasury yields increased as investors prepared to battle the rampant inflation ahead of the second quarter corporate earnings, with many market participants uncertain over how the Federal Reserve will shape its monetary policy. On June 13, the one-day turnover for the U.S fixed income ETFs reached $58 billion, exceeding the $53 billion poured into ETFs in March 2020 when financial markets collapsed amid the COVID-19 pandemic.
Todd Rosenbluth, head of research at the data provider VettaFi, observed that Americans are pouring their money into fixed income investment vehicles to combat market uncertainty and stress. As of June 2022, treasury yields have risen by 252 basis points. Matthew Bartolini, head of SPDR Americas research at State Street Global Advisors, noted that investors are seeking out bond ETFs to increase liquidity and in order t0 adapt their portfolios to the aggressive Fed policies.
According to research firm CFRA, U.S-listed bond ETFs have seen inflows of about $500 billion since the conclusion of 2019, ending June 2022 with approximately $1.2 trillion in assets under management. Rising investor demand led prominent asset managers to introduce 163 new products over the last three years. Some of the ETFs also expose investors to corporate bonds of notable companies like Bank of America Corporation (NYSE:BAC), Ford Motor Company (NYSE:F), and AbbVie Inc. (NYSE:ABBV).
Our Methodology
We explored multiple U.S-listed bond ETFs for a well-rounded outlook of some of the top exchange-traded funds. We have also discussed the prominent holdings of the ETFs to provide better insight to potential investors.
Best Bond ETFs to Buy Now
10. iShares Core U.S. Aggregate Bond ETF (NYSE:AGG)
iShares Core U.S. Aggregate Bond ETF (NYSE:AGG) tracks the investment results of the Bloomberg US Aggregate Bond Index, comprising U.S investment-grade bonds. The exchange-traded fund offers a net expense ratio of 0.03% and its 5-year returns came in at 0.83%, compared to the benchmark’s returns of 0.88% over the same period. As of July 11, iShares Core U.S. Aggregate Bond ETF (NYSE:AGG)’s total assets amount to roughly $81 billion and the portfolio has 10,280 holdings. The ETF delivers a monthly yield of 3.28% as of July 8.
iShares Core U.S. Aggregate Bond ETF (NYSE:AGG) invests primarily in the United States Treasury and Federal mortgage backed securities, as well as corporate bonds of industrial and financial institutions. 41% of iShares Core U.S. Aggregate Bond ETF (NYSE:AGG)’s portfolio is occupied by treasury bonds. About 73% of the portfolio consists of AAA-rated bonds.
One of the corporate bonds that iShares Core U.S. Aggregate Bond ETF (NYSE:AGG) invests in is issued by Bank of America Corporation (NYSE:BAC), an American multinational investment bank and financial services holding company. The company’s bonds are rated as Positive and Stable by Moody’s, Standard & Poor’s, and Fitch.
Societe Generale analyst Andrew Lim on July 11 upgraded Bank of America Corporation (NYSE:BAC) to ‘Buy’ from ‘Hold’ with a $37.50 price target. As per the analyst, Bank of America Corporation (NYSE:BAC) is the “highest quality” U.S. universal bank with a largely defensive loan portfolio. Bank of America Corporation (NYSE:BAC) also has high sensitivity to increasing rates, added the analyst.
According to Insider Monkey’s data, 99 hedge funds were bullish on Bank of America Corporation (NYSE:BAC) at the end of Q1 2022, up from 84 funds in the prior quarter. Warren Buffett’s Berkshire Hathaway is the biggest shareholder of the company, with more than 1 billion shares worth $41.6 billion.
Here is what ClearBridge Investments had to say about Bank of America Corporation (NYSE:BAC) in its Q1 2021 investor letter:
“Higher long-term interest rates supported financials such as Bank of America, which has shown both defensive and offensive characteristics in the past year. We believe it continues to be the least risky large bank from a credit standpoint, with conservative underwriting and controlled risk taking, a leading consumer deposit franchise, scale and technology. It is also a leader in its commitments to sustainability, or as it terms it, responsible growth. Disclosure and reporting at all levels form a large part of this commitment, including gender diversity and equality, environmental commitments and support of communities in which it operates. In the first quarter Bank of America announced it is setting a goal of net-zero greenhouse gas (GHG) emissions in its supply chain and operations, and notably also in its financing activities, before 2050.”
9. Vanguard Total Bond Market Index Fund (NASDAQ:BND)
The Vanguard Total Bond Market Index Fund (NASDAQ:BND) tracks the investment results of a broad, market-weighted bond index. The underlying benchmark is the Bloomberg US Aggregate Bond Index. The exchange-traded fund primarily invests in treasury and agency bonds, as well as government mortgage-backed bonds. The Vanguard Total Bond Market Index Fund (NASDAQ:BND)’s net expense ratio is 0.03% and its total net assets amount to $286.6 billion. The fund has 10,173 holdings in its portfolio, and offers a 30-day SEC yield of 3.41% with a monthly distribution.
The Vanguard Total Bond Market Index Fund (NASDAQ:BND) invests in AbbVie Inc. (NYSE:ABBV)’s corporate bonds, which have a coupon rate of 4.250%. The bonds will mature on November 21, 2049. In 2019, the American pharmaceuticals group AbbVie Inc. (NYSE:ABBV) issued corporate bonds worth $30 billion to raise investment-grade debt. This was done to fund the $83 billion takeover of its competitor, Allergan. AbbVie Inc. (NYSE:ABBV) issued corporate bonds with 10 different maturities, ranging from 18 months to 30 years.
According to Insider Monkey’s database, 76 hedge funds held bullish positions in AbbVie Inc. (NYSE:ABBV) at the end of March 2022. Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital is the largest shareholder of the company, with 4.65 million shares worth over $754 million.
Here is what Baron Health Care Fund had to say about AbbVie Inc. (NYSE:ABBV) in its Q1 2022 investor letter:
“AbbVie Inc. (NYSE:ABBV) is a large pharmaceutical company best known for its product Humira, which has been the largest selling drug for over a decade. There has been investor concern around the Humira patent cliff starting in 2023, but AbbVie has done a nice job diversifying its pipeline with its acquisition of Allergan and development of other drugs. Investors have begun to rotate into AbbVie, given a single-digit earnings multiple in an environment of greater uncertainty. We retain conviction in AbbVie given its durable cash flow streams.”
8. iShares iBoxx $ High Yield Corporate Bond ETF (NYSE:HYG)
The iShares iBoxx $ High Yield Corporate Bond ETF (NYSE:HYG) seeks to track the investment results of the Markit iBoxx USD Liquid High Yield Index, which is composed of U.S. dollar-denominated, high-yield corporate bonds. The fund was established in April 2004, and as of July 11, its net assets stand at $14.5 billion. With 1,269 holdings in its portfolio, the iShares iBoxx $ High Yield Corporate Bond ETF (NYSE:HYG) invests primarily in BB, B, and CCC-rated bonds. These corporate bonds are issued by companies in the communications, consumer cyclical and non-cyclical, energy, capital goods, and technology sectors. The ETF delivers a 30-day SEC yield of 7.77%.
The corporate bonds issued by Ford Motor Credit Company, the financial services division of Ford Motor Company (NYSE:F), are a significant component of the iShares iBoxx $ High Yield Corporate Bond ETF (NYSE:HYG)’s portfolio. On May 20, Tigress Financial analyst Ivan Feinseth raised the price target on Ford Motor Company (NYSE:F) to $22 from $20 and reaffirmed a ‘Buy’ rating on the shares. As per the analyst, robust demand for the company’s internal combustion engine F-series trucks and SUVs will generate solid short-term revenue, while Ford Motor Company (NYSE:F)’s “aggressive electrification investment initiatives” can drive long-term share price appreciation.
According to Insider Monkey’s data, 46 hedge funds were bullish on Ford Motor Company (NYSE:F) in the first quarter of 2022, with collective stakes worth $1.2 billion. D E Shaw is a prominent stakeholder in the company, with 31.2 million shares valued at $528.3 million.
Here is what Baron Fund had to say about Ford Motor Company (NYSE:F) in its Q1 2022 investor letter:
“Ford (NYSE:F) is another example of typical industrial manufacturing business executive mindsets. The April 18, 2022, Bloomberg Businessweek cover story features Ford CEO Jim Farley behind the wheel of an electrified Ford F-150 Lightning. The article is titled, “Hey Elon, THIS is a truck.” I thought the article was terrific. One idea especially stood out to me. Since the F-150 is such a popular vehicle, it “argued for a gradual approach to electrification. Essentially the company retrofitted an existing F-150 with an electric powertrain rather than develop an entirely new truck.” No all-in financial and operation bet by this company on electrification.”
7. Vanguard Total International Bond Index Fund (NASDAQ:BNDX)
The Vanguard Total International Bond Index Fund (NASDAQ:BNDX) seeks to track the performance of the Bloomberg Global Aggregate ex-USD Float Adjusted RIC Capped Index, employing hedging strategies to mitigate exchange rate risk. The fund is passively managed and uses index sampling strategy, investing in key bond markets outside the United States. The Vanguard Total International Bond Index Fund (NASDAQ:BNDX)’s expense ratio as of February 25 stands at 0.07%. The ETF holds 6,627 bonds in its portfolio, with total net assets of $88.2 billion. The fund primarily invests in the European and Pacific bond markets. More than 96% of the portfolio consists of AAA, AA, A, and BBB-rated bonds.
The Vanguard Total International Bond Index Fund (NASDAQ:BNDX)’s largest holding is an Australia Government Bond with SEDOL code BMD7R11. The bond will mature on November 21, 2024 and it has a coupon rate of 0.250%. The fund paid a dividend of $0.04310 on July 7. The Vanguard Total International Bond Index Fund (NASDAQ:BNDX) distributes dividends monthly and delivers a 30 day SEC yield of 2.12%.
In addition to government-backed bonds, investors are also bullish on corporate bonds issued by prominent companies like Bank of America Corporation (NYSE:BAC), Ford Motor Company (NYSE:F), and AbbVie Inc. (NYSE:ABBV).
6. SPDR Portfolio High Yield Bond ETF (NYSE:SPHY)
The SPDR Portfolio High Yield Bond ETF (NYSE:SPHY) aims to replicate the price and yield performance of the ICE BofA US High Yield Index. The underlying benchmark consists of below investment-grade U.S dollar-denominated high-yield bonds with at least 18 months to final maturity, a fixed coupon, and a minimum outstanding amount of $250 million. The SPDR Portfolio High Yield Bond ETF (NYSE:SPHY)’s gross expense ratio is 0.10% and it has a 30-day SEC yield of 8.48%, with a monthly distribution frequency. The portfolio comprises 2,014 holdings.
Caesars Entertainment, Inc. (NASDAQ:CZR)’s corporate bonds are among the top holdings of the SPDR Portfolio High Yield Bond ETF (NYSE:SPHY). Caesars Entertainment, Inc. (NASDAQ:CZR) operates as a gaming and hospitality company in the United States. On June 28, B. Riley analyst David Bain reiterated a ‘Buy’ rating on Caesars Entertainment, Inc. (NASDAQ:CZR) but lowered the price target on the stock to $128 from $149. The analyst said that gaming valuations were lower but they “still leave significant share price upside”.
According to Insider Monkey’s data, 73 hedge funds were bullish on Caesars Entertainment, Inc. (NASDAQ:CZR) at the end of Q1 2022, with collective stakes worth $1.5 billion.
Like Bank of America Corporation (NYSE:BAC), Ford Motor Company (NYSE:F), and AbbVie Inc. (NYSE:ABBV), elite investors are pouring into Caesars Entertainment, Inc. (NASDAQ:CZR).
Here is what Carillon Eagle Mid Cap Growth Fund had to say about Caesars Entertainment, Inc. (NASDAQ:CZR) in its Q4 2021 investor letter:
“Caesars Entertainment, a diversified casino-entertainment and resort company, underperformed in the period as its quarterly earnings update was viewed as disappointing by investors. The firm highlighted a number of one-time headwinds that ultimately weighed on margins, as well as some negative impacts brought on by the surge in COVID cases. Despite this, we believe that the sizable overall margin improvements Caesars has realized coming out of the pandemic will ultimately prove sustainable in the long run.”
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Disclosure: None. 10 Best Bond ETFs to Buy Now is originally published on Insider Monkey.
