Bond ETF Snapshot

May 17, 2011 in Bonds

With the bond market assuming the role of leading segment this month, lets take a look at the structure of the market.    

The top 25 fixed-income ETFs have roughly $125 billion in assets.   If we weight this by the durations of each product,  this group has an overall duration of 4.8 years, which is in-line with the Barclays Aggregate Bond Index.   This highlights our recent focus on 5-year bond yields

While some think that the bond market means 10 or 30-year treasuries, you will see that only 1 ETF in the top 25 has a duration of 10 years or longer (TLT). From a bond market investment standpoint, investors on average own 5 year bonds, not 10-30 year bonds.  Below is the breakdown by product:


For a comparison, we use the Pimco Total Return mutual fund --- which also keeps a lid on its portfolio duration.    While many in the media like to speculate about how Pimco is short US Treasuries and so forth --- they seem to fail to understand the exposure of the OVERALL fund.   Pimco Total Return fund is LONG bonds.   While it may hold some things that trade inversely to certain bond segments, the overall fund trades WITH the bond market.   Here is a look at YTD performance of the above 25 ETFs, weighting by their assets and the performance of that overall portfolio vs the Pimco Total Return Fund:


For fun, here is how it ranks vs these 25.    Not surprisingly, it is trading about in the range you would expect given its structure (duration of Pimco is under the aggregate index but it does own some stronger performing Int'l bonds).  Pimco Total Return currently ranks 15th out of 26 (25 bond ETFs plus PTTRX).




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Comments (2) -

May 17, 2011 19:01 #

Thanks for this.  In a portfolio of 25, how many and which of the above would you consider a minimum to "cover" fixed interest.



Graham Critchley Australia

May 24, 2011 15:49 #

Interesting. Puts a different perspective on the performance of PTTRX over the years, though your article only shows YTD performance. I often look at PTTRX, but never thought of it as a fund simply with so many different parts of the fixed income market (albeit in different weights)

jreev42 United States

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