Numbers Game

Bond ETFs' resiliency surprises many investors

Despite curveballs from central banks catching the greater bond market off guard, bond ETFs enjoyed a positive Q1

Apr 19, 2015 @ 12:01 am

By Jeff Tjornehoj

Although this past quarter's bond market wasn't quite as hot as the market's performance in the fourth quarter of 2014, the resiliency certainly surprised many investors, given the central bank curveballs that occurred.

Among the wild pitches in Q1: the Swiss central bank's decision to let the franc float after committing to a euro peg a few years ago, Canada's surprise rate cut, and more dovish comments from Federal Reserve Chair Janet Yellen (and other FOMC members) that extended the date for the first rate hike under the new chief.

While each of those actions caught the greater bond market off guard, each of them also emboldened bond market investors willing to take a bit more risk. Long-term bond exchange-traded products (ETPs) raced to an early lead, hit a slump in February and then cruised to victory in March, finishing the quarter up 1.62% on average.

Name/ticker3-month return1-year returnNet assets ($M)Expense ratio*3-month average daily volume
PowerShares DB US Dollar Index Bullish Fund (UUP)8.16%20.86%$1,338.30.75%2,346,699
PIMCO 25+ Year Zero Coupon US Treasury Index ETF (ZROZ)6.36%39.28%$141.30.15%12,316
WisdomTree Bloomberg US Dollar Bullish Fund (USDU)5.86%18.39%$340.20.50%192,208
Vanguard Extended Duration Treasury Index Fund ETF (EDV)5.32%35.80%$477.70.12%179,535
iShares 20+ Year Treasury Bond ETF (TLT)4.19%23.20%$6,519.30.15%9,541,973
SPDR Barclays Long Term Treasury ETF (TLO)3.92%21.21%$331.10.10%95,022
Vanguard Long-Term Government Bond Index Fund ETF (VGLT)3.91%20.94%$233.10.12%64,435
SPDR Wells Fargo Preferred Stock ETF (PSK)3.80%11.74%$300.30.45%34,170
Market Vectors Fallen Angel High Yield Bond ETF (ANGL)3.77%6.33%$19.30.40%7,298
iShares Core Long-Term USD Bond ETF (ILTB)3.50%14.55%$235.60.12%36,464
SPDR Barclays Long Term Corporate Bond ETF (LWC)3.39%12.53%$438.00.12%118,412
Vanguard Long-Term Bond Index Fund ETF (BLV)3.33%15.78%$1,270.80.10%145,976
First Trust Preferred Securities and Income ETF (FPE)3.21%8.34%$164.90.87%110,023
Vanguard Long-Term Corporate Bond Index Fund ETF (VCLT)3.19%12.90%$1,288.30.12%28,540
PowerShares Preferred Portfolio (PGX)3.16%11.07%$2,850.30.50%1,169,173
Deutsche X-trackers Solactive Inv Gr Sub Debt ETF (SUBD)3.12%N/A$10.40.45%1,369
Guggenheim Invest BulletShares 2022 HY Corp Bond ETF (BSJM)3.09%N/A$15.00.42%4,481
Guggenheim Invest BulletShares 2021 HY Corp Bond ETF (BSJL)3.06%N/A$19.90.42%6,358
Guggenheim BulletShares 2024 Corporate Bond ETF (BSCO)2.97%N/A$34.30.24%21,720
Market Vectors CEF Municipal Income ETF (XMPT)2.96%13.38%$45.41.65%3,204
iShares iBonds Mar 2023 Corp ex-Financials ETF (IBCE)2.93%7.63%$39.30.10%2,034
iShares 10+ Year Credit Bond ETF (CLY)2.93%12.11%$911.10.20%19,091
PIMCO Diversified Income Active Exchange-Traded (DI)2.87%2.77%$47.20.85%2,363
Guggenheim BulletShares 2023 Corporate Bond ETF (BSCN)2.86%N/A$18.70.24%9,615
Guggenheim BulletShares 2022 Corporate Bond ETF (BSCM)2.85%7.20%$165.20.25%113,645
iShares US Preferred Stock ETF (PFF)2.77%9.19%$13,072.70.47%2,160,132
PIMCO Total Return Active Exchange-Traded Fund (BOND)2.73%7.49%$2,585.40.55%195,484
PowerShares 1-30 Laddered Treasury Portfolio (PLW)2.66%13.07%$393.00.25%125,173
Vanguard Intermediate-Term Corp Bond Index Fund ETF (VCIT)2.66%7.01%$5,196.00.12%22,819
iShares iBonds Mar 2023 Corporate ETF (IBDD)2.63%7.33%$64.00.10%5,717
iShares 10-20 Year Treasury Bond ETF (TLH)2.63%12.31%$429.60.15%51,793
WisdomTree Strategic Corporate Bond Fund (CRDT)2.59%5.61%$7.60.45%516
Guggenheim BulletShares 2020 Corporate Bond ETF (BSCK)2.58%5.72%$279.70.25%108,838
Guggenheim BulletShares 2021 Corporate Bond ETF (BSCL)2.56%6.34%$143.30.24%69,849
First Trust Tactical High Yield ETF (HYLS)2.55%2.14%$415.51.29%45,729
iShares iBoxx $ Inv Grade Corporate Bond ETF (LQD)2.54%7.69%$22,418.00.15%2,516,372
iShares Baa - Ba Rated Corporate Bond ETF (QLTB)2.53%5.74%$124.90.30%22,540
iShares 7-10 Year Treasury Bond ETF (IEF)2.49%8.77%$6,554.10.15%1,911,426
Market Vectors Emg Mkts High Yield Bond ETF (HYEM)2.481%-1.73%$395.60.40%97,682
PIMCO 7-15 Year US Treasury Index ETF (TENZ)2.477%8.90%$25.00.15%2,060

Fixed-income ETFs ranked by quarterly returns

While it's technically not a bond fund, the quarter's best performer in Lipper's bond funds universe, PowerShares DB US Dollar Index Bullish Fund (UUP) gained 8.16% as the greenback dominated other currencies such as the euro (+12.7%), the pound (+5.0%) and the Canadian dollar (+8.1%). The top-performing bond ETP was PIMCO 25+ Year Zero Coupon US Treasury Index (ZROZ); with a 6.36% return, it was a huge beneficiary of a Treasury rally that hasn't tired of playing extra innings. As in the previous quarter, ZROZ led bond fund performance, and again it was followed by peer fund Vanguard Extended Duration Treasury Index Fund ETF (EDV), with a Q1 return of 5.32%.

Name/ticker3-month estiamted net flows ($M)3-month return1-year returnNet assets ($M)Expense ratio*
iShares iBoxx $ Inv Grade Corporate Bond ETF (LQD)$2,731.552.54%7.69%$22,418.00.15%
iShares iBoxx $ High Yield Corporate Bond ETF (HYG)$2,152.252.08%1.41%$16,712.60.50%
iShares Short Treasury Bond ETF (SHV)$1,675.430.04%0.02%$4,785.50.15%
SPDR Barclays High Yield Bond ETF (JNK)$1,639.512.40%0.58%$11,439.40.40%
iShares US Preferred Stock ETF (PFF)$1,214.762.77%9.19%$13,072.70.47%
First Trust Enhanced Short Maturity ETF (FTSM)$846.030.30%N/A$964.20.25%
iShares Core US Treasury Bond ETF (GOVT)$789.911.60%5.26%$1,054.00.15%
Vanguard Intermediate-Term Bond Index Fund;ETF (BIV)$782.552.41%6.93%$5,738.00.10%
Vanguard Total Bond Market Index Fund ETF (BND)$773.841.65%5.63%$27,143.40.08%
SPDR Barclays Short Term High Yield Bond ETF (SJNK)$677.681.50%-0.68%$4,608.20.40%
Vanguard Short-Term Corporate Bond Idx Fund ETF (VCSH)$655.451.22%2.32%$9,897.20.12%
Vanguard Intermediate-Term Corp Bond Idx Fund ETF (VCIT)$577.752.66%7.01%$5,196.00.12%
iShares TIPS Bond ETF (TIP)$523.761.41%2.99%$12,971.40.20%
iShares National AMT-Free Muni Bond ETF (MUB)$520.410.84%6.00%$4,655.50.25%
Vanguard Total International Bond Index Fund;ETF (BNDX)$509.602.18%8.81%$3,566.80.20%
iShares Core US Aggregate Bond ETF (AGG)$480.191.63%5.79%$24,032.50.08%
iShares 3-7 Year Treasury Bond ETF (IEI)$447.461.75%4.22%$4,432.50.15%
PowerShares Preferred Portfolio (PGX)$388.643.16%11.07%$2,850.30.50%
iShares Core Total USD Bond Market ETF (IUSB)$347.041.76%N/A$372.30.15%
Vanguard Short-Term Bond Index Fund;ETF (BSV)$312.950.94%1.86%$16,084.50.10%

Fixed-income ETFs with the largest inflows

The dollar's strength played an obvious role in determining the quarter's weakest performers. Currency plays such as Guggenheim CurrencyShares Euro Trust (FXE, -11.35%) and WisdomTree Brazilian Real Strategy Fund (BZF, -14.86%) were easy targets, as were funds in Lipper's International Income Funds category, such as ProShares German Sovereign/Sub-Sovereign (GGOV, -9.55%) and SPDR Barclays International Corporate Bond (IBND, -9.36%).

Name/ticker3-month average daily volume3-month return1-year returnNet assets ($M)Expense ratio*
Market Vectors Short High-Yield Muni Index ET (SHYD)29,7311.13%4.41%$94.50.35%
iShares iBonds Sep 2019 AMT-Free Muni Bond ETF (IBMH)15,9980.67%2.73%$48.20.18%
AdvisorShares YieldPro ETF (YPRO)14,736-0.22%-1.75%$47.41.51%
SPDR Barclays International High Yield Bond ETF (IJNK)9,388-2.71%-7.48%$24.70.40%
PIMCO Low Duration Active Exchange-Traded (LDUR)4,6221.39%2.54%$155.00.49%
iShares Treasury Floating Rate Bond ETF (TFLO)3,4060.06%0.13%$10.00.00%
PIMCO Diversified Income Active Exchange-Traded (DI)2,3632.87%2.77%$47.20.85%
WisdomTree Bloomberg Floating Rate Treasury Fund (USFR)1,8700.0004%-0.02%$1.20.15%
AdvisorShares Sage Core Reserves ETF (HOLD)9770.47%0.31%$34.80.35%
SPDR Barclays 0-5 Year TIPS ETF (SIPE)9160.39%-1.01%$3.90.15%

One-year anniversary fixed-income ETFs ranked by average daily volume during Q1 2015

Despite their positions at the top or bottom of the performance tables, just one of the products named so far was among the 20 most attractive (or repulsive) in terms of inflows (or outflows). The quarter's top destination for new money was iShares iBoxx $ Investment Grade Corporate Bond (LQD), where over $2.7 billion net found a new home. Sister fund iShares iBoxx $ High Yield Corporate Bond (HYG) was second for net inflows with just under $2.2 billion. But investors apparently disregarded the quarter's Treasury rally because they were net sellers of iShares 7-10 Year Treasury Bond (IEF, -$668 million) and iShares 1-3 Year Treasury Bond (SHY, -$407 million).

Name/ticker3-month estiamted net flows ($M)3-month return1-year returnNet assets ($M)Expense ratio*
iShares 7-10 Year Treasury Bond ETF (IEF)-$667.902.49%8.77%$6,554.10.15%
iShares 1-3 Year Treasury Bond ETF (SHY)-$407.260.51%0.91%$7,739.20.15%
iShares Floating Rate Bond ETF (FLOT)-$399.600.20%0.33%$3,368.10.20%
PowerShares Senior Loan Portfolio (BKLN)-$297.881.38%1.16%$5,438.60.65%
PIMCO 1-5 Year US TIPS Index Exchange-Traded Fund (STPZ)-$255.540.42%-1.04%$1,081.20.20%
WisdomTree Asia Local Debt Fund (ALD)-$220.71-1.28%-2.64%$55.70.55%
PIMCO Enhanced Short Maturity Active Exch Tr (MINT)-$198.240.30%0.68%$3,664.10.35%
Guggenheim Invest BulletShares 2015 HY Corp Bd ETF (BSJF)-$162.711.00%1.20%$842.00.44%
SPDR Barclays International Treasury Bond ETF (BWX)-$154.28-4.12%-9.23%$1,690.10.50%
iShares 1-3 Year Credit Bond ETF (CSJ)-$126.040.65%1.02%$10,893.20.20%
Guggenheim Invest BulletShares 2015 Corp Bd ETF (BSCF)-$101.030.15%0.46%$511.70.25%
PIMCO 7-15 Year US Treasury Index ETF (TENZ)-$87.272.48%8.90%$25.00.15%
SPDR DB Intl Govt Inflation-Protected Bond ETF (WIP)-$61.69-4.20%-7.08%$668.30.50%
Guggenheim Enhanced Short Duration ETF (GSY)-$59.940.50%0.95%$435.60.30%
FlexShares iBoxx 3-Year Target Duration TIPS Index (TDTT)-$49.410.49%-1.19%$2,150.60.20%
Guggenheim CurrencyShares Australian Dollar Trust (FXA)-$47.13-6.27%-16.07%$187.40.40%
iShares 20+ Year Treasury Bond ETF (TLT)-$46.304.19%23.20%$6,519.30.15%
PowerShares Chinese Yuan Dim Sum Bond Portfolio (DSUM)-$43.460.01%2.03%$107.00.45%
PIMCO 0-5 Year High Yield Corporate Bond Index ETF (HYS)-$39.691.28%0.36%$2,858.20.55%
Vanguard Extended Duration Treasury Index Fund ETF (EDV)-$33.675.32%35.80%$477.70.12%

Fixed-income ETFs with the largest outflows

Despite placing not far from the top of the performance charts, Vanguard Extended Duration Treasury Index Fund ETF shares (EDV) saw investors pull an estimated $34 million net from the fund.

Investors were treated to some new choices during the quarter, although the slow start, with no new products launched until mid-February, ensured that asset gathering was limited.

ETF Managers Capital and Sit Fixed Income Advisors kicked things off with the launch of Sit Rising Rate ETF (RISE), two industry leaders combined to form SPDR DoubleLine Total Return Tactical ETF (TOTL), iShares rolled out seven ETFs that hold investment-grade corporate bonds maturing in each of the odd years from 2017 to 2025, and Deutsche X-trackers released three interest rate-hedged bond ETFs.

Name/tickerClassification3-month average daily volumeExpense ratio*
SPDR DoubleLine Total Return Tactical ETF (TOTL)Multi-Sector income282,6500.55%
AdvisorShares Pacific Asset Enh Floating Rate ETF (FLRT)Loan participation23,8321.10%
Sit Rising Rate ETF (RISE)Short U.S. treasury12,7631.50%
iShares US Fixed Income Balanced Risk ETF (INC)Multi-Sector income4,2140.25%
iShares Short Maturity Municipal Bond ETF (MEAR)Short municipal debt3,6540.25%
Deutsche X-trackers Hi Yield Corp Bd - IR Hdg ETF (HYIH)High yield1,1970.45%
Deutsche X-trackers Emerg Markets Bd - IR Hdg ETF (EMIH)Emerging Mrkts Hard Currency Debt7620.50%
iShares iBonds Dec 2025 Corporate ETF (IBDQ)Core bond4600.10%
iShares iBonds Dec 2021 Corporate ETF (IBDM)Core bond4180.10%
iShares iBonds Dec 2019 Corporate ETF (IBDK)Short-Intmdt investment grade debt3610.10%
iShares iBonds Dec 2023 Corporate ETF (IBDO)Core bond3320.10%
iShares iBonds Dec 2017 Corporate ETF (IBDJ)Short-Intmdt investment grade debt3240.10%
iShares iBonds Dec 2024 Corporate ETF (IBDP)Core bond2200.10%
iShares iBonds Dec 2022 Corporate ETF (IBDN)Core bond1370.10%
Deutsche X-trackers Invest Grade Bd - IR Hdg ETF (IGIH)Corporate debt funds BBB-Rated700.25%

All data above is as of March 31. Excludes leveraged and inverse funds, and exchange traded notes. *Most recently reported net prospectus expense ratio. Source: Lipper, a Thomson Reuters company

Newly-launched fixed-income ETFs ranked by average daily volume during Q1 2015

Jeff Tjornehoj is head of Americas research for Lipper Inc.

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