Investing in bond ETFs can be a great way to add stability and income to your portfolio. Choosing the best bond ETFs for a better return depends on your individual investment goals and risk tolerance.
Looking for bond investments? We have got you covered. Here are a few popular bond ETFs that are considered to be good options for investors looking for a better return. Without ado let's find out the best ETFs to buy.
Things To Consider Before Buying Best Income EFTs
Here are some factors to consider for EFT bond funds. Once you've considered these factors, you can start to narrow down your choices.
- Expense Ratio: Look for ETFs with low expense ratios. These fees can significantly impact your returns over time.
- Yield: Consider the yield of the bond ETF. Higher yields may offer better returns, but be cautious of excessively high yields, as they could indicate higher risk.
- Credit Quality: Pay attention to the credit quality of the bonds within the ETF. Higher-quality bonds may have lower yields but are generally less risky.
- Duration: Duration is a measure of a bond's sensitivity to interest rate changes. Longer-duration bonds are more sensitive to interest rate fluctuations. Choose a bond ETF with a duration that aligns with your risk tolerance and market outlook.
Vanguard Total Bond Market ETF (BND)
This best ETFs to buy tracks the entire U.S. bond market, delivering extensive diversification by holding a mix of government, corporate, and mortgage-backed securities. With a minimal expense ratio of 0.04%, the ETF offers a yield of 3.08%, providing investors with a potential income stream.
Having a long and successful track record, it consistently delivers competitive returns compared to other bond ETFs. Additionally, Vanguard is a highly respected investment firm known for its low-cost, index-based products, further solidifying BND's reputation as a reliable and trustworthy investment option.
- 10-Year Avg. Ann. Return: 1.29%
iShares Core U.S. Aggregate Bond ETF (AGG)
Similar to BND, but AGG excludes certain types of bonds, such as Treasury Inflation-Protected Securities (TIPS). This best income ETFs boasts a very low expense ratio of 0.03%, slightly lower than BND's 0.04%. This translates to higher returns for you as less of your investment goes towards fees.
It offers a current yield of 2.38%, similar to BND's 2.42%. This provides a relatively predictable income stream for conservative investors seeking stability. AGG is also highly liquid and transparent, allowing you to easily buy and sell shares and understand its exact holdings.
- 10-Year Avg. Ann. Return: 1.77%
PIMCO Active Bond Exchange-Traded Fund (BOND)
It stands out with its active management approach, aiming to outperform the bond market. Despite a slightly higher expense ratio of 0.55%, the fund offers an attractive dividend yield of 4.10%, potentially providing investors with a significant income stream.
PIMCO's management strategy allows for flexibility in adapting to changing market conditions, potentially offering better risk-adjusted returns. However, individual preferences and risk tolerance should be considered when choosing between active and passive bond funds.
- 10-year average annual return: 2.06%
SPDR Portfolio High Yield Bond ETF (SPHY)
With the continuous growth over the past years, the SPDR Portfolio High Yield Bond ETF (SPHY) emerges as an appealing option for those seeking higher potential returns by delving into the realm of high-yield bonds, often colloquially referred to as junk bonds.
Despite the inherently increased risk associated with such bonds, SPHY stands out with a compelling yield of 5.12%, serving as a potential source of substantial income in a low-interest-rate environment. Notably, the ETF maintains a relatively moderate expense ratio of 0.35%.
- 10-Year Avg. Ann. Return: 4.23%
Pimco Enhanced Short Maturity Active ESG ETF (EMNT)
Have you known EMNT is a noteworthy investment option for those prioritizing environmental, social, and governance (ESG) considerations? Despite its short-maturity focus, the fund offers an attractive dividend yield of 4.62%, making it an appealing choice for investors.
With an expense ratio of 0.24%, EMNT provides cost-effective exposure to a portfolio that aligns with ESG principles. It showcases stability and consistency in navigating short-term maturities while incorporating ESG factors into its investment strategy.
- Avg. Ann. Return Since Inception (December 2019): 1.88%
JPMorgan Ultra-Short Income ETF (JPST)
PST invests in bonds with maturities of less than one year, making it significantly shorter-term than BND and AGG. This short term bond EFT is only available to certain qualified retirement plans and governmental plans and is not offered to the general public. This makes it inaccessible to individual investors.
Due to its focus on shorter maturities, JPST currently offers a higher yield than BND and AGG, with a current yield of around 5.49% (as of January 12, 2024) with an expenses ratio of 0.18%. It focuses on ultra-short maturities generally translates to lower volatility and risk.
- 10-Year Avg. Ann. Return: 1.66%
iShares MBS ETF (MBB)
The MBB is a different type of bond ETF compared to those we've mentioned previously. It focuses on mortgage-backed securities (MBS) rather than a broad range of bonds. It primarily invests in investment-grade, agency-backed MBS issued by entities like Fannie Mae and Freddie Mac.
MBB historically offers higher yields due to the higher interest rates typically associated with mortgages. The current yield of MBB is around 4.81% with a 5.8-year duration and a 0.04% expense ratio. However, MBB is liquid, meaning it may be more difficult to buy and sell shares quickly.
- 10-Year Avg. Ann. Return: 1.10%
Vanguard Intermediate-Term Corporate Bond ETF (VCIT)
It is an exchange-traded fund (ETF) that tracks the performance of a market-weighted corporate bond index with an intermediate-term dollar-weighted average maturity. In simpler terms, this corporate bond ETFs invests in a basket of investment-grade corporate bonds due in 5 to 10 years.
VCIT currently offers a yield of around 5.10% and has a very low expense ratio of 0.04%. But, because VCIT is somewhat sensitive to changes in interest rates. Rising interest rates could lead to losses in the value of the ETF.
- 10-Year Avg. Ann. Return: 2.92%
iShares 20+ Year Treasury Bond ETF (TLT)
Widely popular ETF due to its tracking the performance of an index composed of long-term U.S. Treasury bond ETFs with maturities exceeding 20 years. This provides exposure to the long-term U.S. government bond market.
TLT has a relatively low expense ratio, making it cost-effective for investors. The 1-month return of 4.57% indicates the performance over the most recent month, and the total return of 9.92% over the past year reflects the fund's overall performance during that period.
- 10-Year Avg. Ann. Return: 2.13%
Vanguard Total International Bond ETF (BNDX)
Standing out with its exceptionally low expense ratio of 0.07%, it enhances cost-effectiveness for investors. While offering a moderate current yield of 4.46%, BNDX distinguishes itself by tracking a benchmark index that reflects the performance of investment-grade bonds issued internationally, excluding the United States.
This approach provides a diversified and comprehensive exposure to the global fixed-rate debt markets. As an international bond ETF, BNDX caters to investors seeking to broaden their fixed-income portfolio beyond domestic borders, offering a strategic tool to access stability.
- 10-Year Avg. Ann. Return: 2.32%
SPDR Portfolio Corporate Bond ETF (SPBO)
Investing in the SPDR Portfolio Corporate Bond ETF (SPBO) can be compelling for several reasons. Its exceptionally low expense ratio of 0.03%, with an attractive dividend yield of 4.79% enhances its appeal, offering potential income generation in a low-interest-rate environment.
SPBO focuses on investment-grade corporate bonds, striking a balance between risk and return. The combination of minimal expenses, a competitive yield, and exposure to a broad spectrum of corporate bonds positions SPBO as an attractive choice for income-focused investors.
- 10-Year Avg. Ann. Return: 2.68%
Global X 1-3 Month T-Bill ETF (CLIP)
CLIP presents an enticing option for investors, primarily due to its low expense ratio of 0.07%. Furthermore, the current yield of 5.5% is noteworthy, especially in the context of short-term Treasury bills.
It focuses on 1-3 month Treasury bills, offering a low-risk investment with a competitive yield. For investors seeking stability and liquidity while optimizing returns, CLIP stands out as an efficient choice, combining minimal expenses with a favorable yield in the short-term Treasury market.
- 30-day Avg. Ann. Return: 5.29%
Fidelity Short-Term Municipal Bond ETF (FSMB)
Are you seeking tax-exempt income with a short investment horizon? With a low expense ratio of 0.06%, FSMB ensures investors retain a larger share of their tax-free returns. The yield of 1.81% is suited for those with a need for their funds in the near term.
The focus on short-term municipal bonds aligns to minimize interest rate risk. FSMB thus becomes a compelling option for individuals prioritizing tax efficiency, capital preservation, and liquidity, particularly when preparing for imminent financial needs.
- 3-Year Avg. Ann. Return: 1.66%
BlackRock High Yield Bond ETF (HYG)
It is one of the most popular high-yield bond ETFs in the market, offering broad exposure to U.S.-dollar-denominated high-yield corporate bonds. With an expense ratio of 0.49%, HYG provides investors access to the high-yield market in the low-cost method.
What further enhances its appeal is the substantial current yield of 7.26%. Its popularity underscores the trust investors place in BlackRock's expertise in managing high-yield fixed-income assets.
- 10-Year Avg. Ann. Return: 6.49%
Schwab Short-Term High Yield ETF (SHYG)
Designed to balance the pursuit of attractive yields to minimize interest rate risk, SHYG is well-suited for those with a preference for a shorter investment horizon. The expense ratio of 0.40% adds to its appeal, giving the best options for investors.
With a competitive yield of 4.79%, SHYG offers a compelling income stream, making it a noteworthy option for those desiring higher returns while remaining mindful of the potential risks associated with high-yield bonds and seeking a shorter-term investment strategy.
- 10-Year Avg. Ann. Return: 4.94%