These exchange-traded funds own bonds with maturities averaging between 3 and 9 years.
If you want a portfolio that mirrors the whole bond market—defined to exclude junk, foreign, tax-exempt and inflation-protected bonds—ETFs from four vendors will serve you well. The total-bond-market offerings from State Street, Schwab, BlackRock and Vanguard, in the third through sixth positions on the cost-efficiency ranking, are very similar. Each:
—has a duration close to 6 years, meaning that the fund’s share price is as sensitive to interest rate movements as a zero-coupon bond due in 6 years.
—puts roughly a fourth of assets in corporate bonds, with most of the rest in bonds issued or guaranteed by the federal government.
—yields a little over 3%.
—offers fixed-income management at a bargain price.
No law says a fixed-income portfolio has to match the market. The first two funds on our list, both iShares from BlackRock, put most of their money in corporate debt. They have yields similar to those of the total market funds. They combine a higher credit risk with a lower interest-rate risk. They win the cost-efficiency competition with a hefty dose of securities lending.
Investors concerned about credit risk can go in the other direction, with a fund that has no corporate debt. In the second category for medium-term bonds we have ETFs that own only Treasurys and Treasury-backed paper like Ginnie Maes. Yields are a little lower and average credit quality is usually AAA (as opposed to AA on the total-market funds).
[Looking for an exchange-traded fund? See the full coverage of Forbes Best ETFs.]
The focus in this survey is on cost efficiency. To compare funds on duration, credit quality and yield, go to Morningstar.
Best ETFs: Medium-Term Bonds
|Ticker||Exchange-Traded Fund||Holding Cost1||Liquidity Score2||Assets ($bil)|
|CIU||iShares Intermediate Credit Bond*
|CRED||iShares US Credit Bond*
|SPAB||SPDR Portfolio Aggregate Bond*
|SCHZ||Schwab US Aggregate Bond*||68||A||5.0|
|AGG||iShares Core US Aggregate Bond||78||A+||55.3|
|BND||Vanguard Total Bond Market||83||A+||36.4|
|IUSB||iShares Core Total USD Bond Market||99||B||2.1|
|IMTB||iShares Core 5-10 Year USD Bond||104||D||0.04|
|SPIB||SPDR Portfolio Interm Term Corp Bd||110||A||3.3|
|VCIT||Vanguard Interm-Term Corp Bd||116||A||18.3|
|VCSH||Vanguard Short-Term Corporate Bond||116||A||20.9|
|BIV||Vanguard Interm-Term Bond||117||A||14.8|
|PBND||Invesco PureBeta US Aggt Bd||130||F||0.02|
|IBDO||iShares iBonds Dec 2023 Term Corp||146||C||0.4|
|IBDN||iShares iBonds Dec 2022 Term Corp||151||B||0.4|
|IBDP||iShares iBonds Dec 2024 Term Corp||153||C||0.2|
|IBDQ||iShares iBonds Dec 2025 Term Corp||164||D||0.3|
|BYLD||iShares Yield Optimized Bond||165||C||0.04|
|IBCE||iShares iBonds Mar 2023Tm CorpexFncl||168||D||0.04|
|BSCL||Invesco BulletShrs 2021 Corp Bd||172||B||0.9|
|BSCM||Invesco BulletShrs 2022 Corp Bd||172||B||0.7|
|BSCP||Invesco BulletShrs 2025 Corp Bd||185||C||0.1|
|BSCO||Invesco BulletShrs 2024 Corp Bd||190||C||0.3|
|IBDD||iShares iBonds Mar 2023 Term Corp||191||D||0.1|
|BSCN||Invesco BulletShrs 2023 Corp Bd||192||C||0.3|
|BSCQ||Invesco BulletShrs 2026 Corp Bd||197||D||0.1|
|IBDS||iShares iBonds Dec 2027 Term Corp||198||C||0.1|
|BSCR||Invesco BulletShrs 2027 Corp Bd||198||D||0.02|
|AGGY||WisdomTree Barclays YldEnh US AggtBd||203||B||0.4|
|LQD||iShares iBoxx $ Invmt Grade Corp Bd||204||A+||32.0|
|IBDR||iShares iBonds Dec 2026 Term Corp||205||D||0.1|
|QLTA||iShares Aaa – A Rated Corporate Bond||219||C||0.1|
|GIGB||Goldman Sachs Acss Invmt Grd Corp Bd||249||C||0.2|
|IGEB||iShares Edge Investment Grade Enh Bd||320||D||0.03|
|GVI||iShares Intermediate Govt/Crdt Bd||325||B||1.9|
|SUSC||iShares ESG USD Corporate Bond||333||D||0.01|
|GBF||iShares Government/Credit Bond||347||C||0.1|
|NUBD||NuShares ESG US Aggregate Bond||354||D||0.03|
|NUAG||NuShares Enhanced Yield US Aggt Bd||355||D||0.1|
|SKOR||FlexShares Credit-Scored US Corp Bd||381||D||0.1|
|FIBR||iShares Edge US Fixed Income Bal Rsk||388||C||0.1|
|PFIG||Invesco Fundamental InvGr CorpBd||392||C||0.1|
|CJNK||SPDR ICE BofAML Crossover Corp Bd||566||D||0.1|
|PPTB||Portfolio+ Total Bond Market||571||D||0.02|
|FLCO||Franklin Liberty Investment Grd Corp||591||D||0.04|
|FBND||Fidelity Total Bond||593||B||0.4|
|BNDC||FlexShares Core Select Bond||605||D||0.02|
|FCOR||Fidelity Corporate Bond||613||D||0.1|
|HTRB||Hartford Total Return Bond||660||F||0.02|
|UITB||USAA Core Intermediate-Term Bond||660||C||0.1|
Treasury and government-backed bonds
|SCHR||Schwab Intermediate-Term US Trs*
|VGIT||Vanguard Intmdt-Term Trs*
|VMBS||Vanguard Mortgage-Backed Secs||118||A||5.2|
|ITE||SPDR Blmbg Barclays Interm Term Trs||163||B||0.7|
|IEF||iShares 7-10 Year Treasury Bond||244||A+||8.6|
|IEI||iShares 3-7 Year Treasury Bond||244||A||7.2|
|GOVT||iShares US Treasury Bond||249||A||5.5|
|GNMA||iShares GNMA Bond||289||C||0.1|
|AGZ||iShares Agency Bond||334||B||0.4|
|MBSD||FlexShares Disciplined Duration MBS||352||D||0.05|
|MBG||SPDR Blmbg Barclays Mortg Backed Bd||358||C||0.2|
*Best ETFs Honor Roll Member
1 Cumulative cost of holding a $10,000 position for a decade. Incorporates annual expense ratio, bid/ask spreads and cost offset from securities lending. 2Reflects bid/ask spreads and trading volume. A = easy to trade.
Data sources: Morningstar; Bloomberg; fund distributors.
Originally published at Forbes