Fixed Income ETFs
Dividend and fixed income ETFs have seen some of the fastest growth in the ETF space recently, thanks to a combination of aging demographics and a lack of trust in equity markets. As populations age, they tend to develop less of an appetite for risk, and are more likely to invest for income, which makes dividend and fixed income ETFs an attractive option.
The quest for yield has become more challenging in the current ZIRP (Zero Interest Rate Policy) climate. Should interest rates rise due to better economic growth and/or higher inflation, the value of cash flows from fixed income sources will tend to go down. High yield bonds can be especially seductive, but be wary; these bonds are typically rated “junk,” and in an economic contraction the ability of lower rated bond issuers to meet their debt obligations is diminished, and they might even default.
With so many dividend and fixed income ETFs available, it may seem daunting to begin selecting one that fits your needs. These top 10s can be useful in helping you narrow down your focus to those that matter. ETF issues in this particular category are broad and diverse. My top 10s cover the following:
- U.S. Treasury notes and bonds
- U.S. Agency issues including Mortgage Backed Issues.
- Municipal Bonds
- Sovereign Debt
- U.S. and Global Inflation Protected Bonds.
- Global Corporate Bonds
- U.S. Investment Grade Bonds.
- High Yield (Junk) Bonds.
- Preferred Stock Issues.
If you’re looking for greater insight into my investing methodology, you should have a look at my book “The Best ETFs: U.S. Equities” It’s a practical reference tool for ETF investing in the U.S. Equities space.
There will definitely be some similarities between the ten ETFs presented in each of the following top 10s. Sometimes they might even appear practically identical, but you need to keep in mind that there are any number of characteristics that might make an ETF more advantageous than another, depending on your investment style. Chief among those characteristics to be aware of are fee ratios (lower is better), trading volume, benchmarked index, whether the index is “enhanced,” and assets under management.