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Top 10 Long Term U.S. Treasury, Agency & Inflation Protected Bond ETFs

| April 18, 2012

We have combined long-term Treasury Bond ETFs with agency and inflation-protected issues in this condensed list of offerings. Long-term issues have greater yields given the longer duration of bonds in the relevant index. Bonds in the linked indexes are continually rolled-over as some mature or fall into a shorter-term category to maintain the character of the index. Investors gain higher yields but compromise bond price risk for this given the longer duration and interest rate risks. At the same time given low prevailing current yields after inflation yields are negligible currently which enhances risks no matter who you believe regarding future inflation prospects.

We have included some notable inflation protected bonds in this list but our opinion of them is poor. This is due to a number of factors: the validity of current inflation calculations from the government, the very low yields given duration risks and embedded tax liability for imputed income not received for taxable investors. Institutions are more interested in these issues since their investment mandate is more specific in this regard—in other words, they must own them.

We have also included some agency securities and mortgage-backed issues. With the latter, it is believed the Fed will continue to buy these securities in the open market to support the housing and mortgage markets. While the Fed is the major buyer as of this date, you might feel safe participating in this sector as long as their back-stopping a long position.

In the following list our choices include both low fees matched by greater liquidity and comparable yields.

While current Fed policies favor keeping interest rates low for an “extended period” bond vigilantes as they’re known will dictate actual price and yield policy as determined in the market place. The Fed may engage in more Quantitative Easing (QE) which may entail buying Treasury securities in the open market thus managing yields through money printing.

It’s ironic given recent downgrades by S&P and a negative outlook for U.S. credit ratings by Moody’s that bond yields have barely budged. This may be the result of many factors: aging demographics in the U.S. favoring fixed income investments; the relationship between the U.S. and overseas trading partners; a distrust of equity markets by many investors; overseas investors not trusting eurozone bond issues, and institutions having few alternative choices given their investment mandates.

Bond prices finished an excellent 2011 but also may be last year’s investment story. Should equity markets rally significantly in the future, bond markets could perform poorly given their traditional inverse relationship with stock markets.

We look at 10 different bond ETF issues including those that are repetitive varying only slightly by holdings and perhaps more so by varying embedded fees and expenses.

We feature a technical view of conditions from monthly chart views. Simplistically, we recommend longer-term investors stay on the right side of the 12 month simple moving average. When prices are above the moving average, stay long, and when below remain in cash or short. Some more interested in a fundamental approach may not care so much about technical issues preferring instead to buy when prices are perceived as low and sell for other reasons when high; but, this is not our approach.

 receive added signals when markets become extended such as DeMark triggers to exit overbought/oversold conditions.

For traders and investors wishing to hedge or speculate, leveraged long and inverse issues are available to utilize from ProShares and Direxion.

 


 

SPDR Barclays Long Term Treasury ETF 

TLO follows the Barclays Capital Long U.S. Treasury Index which includes all publicly issued, U.S. Treasury securities that have a remaining maturity of 10 or more years, are rated investment grade, and have $250 million or more of outstanding face value. The fund was launched in May 2007. The expense ratio is .13%.

AUM equal $46.9 million and average daily trading volume is 12.8K shares. As of April 2012 the annual dividend yield was 2.34% and YTD return was -2.87%. The one year return was 27.68%.

Data as of April 2012
TLO Top Ten Holdings & Weightings

  1. US Treasury Bond 4.375%: 6.13%
  2. US Treasury Bond 4.25%: 5.81%
  3. US Treasury Bond 4.375%: 5.71%
  4. US Treasury Bond 4.75%: 5.69%
  5. US Treasury Bond 3.875%: 5.60%
  6. US Treasury Bond 3.75%: 5.58%
  7. US Treasury Bond 4.375%: 5.54%
  8. US Treasury Bond 4.625%: 5.52%
  9. US Treasury Bond 4.5%: 4.51%
  10. US Treasury Bond 4.25%: 4.14%

 

PowerShares 1-30 year Laddered Treasury ETF 

PLW follows the Ryan / Mergent 1-30 Year Treasury Laddered Index which measures the potential returns of the U.S. Treasury yield curve based on approximately 30 equally weighted U.S. Treasury issues with fixed coupons, scheduled to mature in a proportional, annual laddered structure. The fund was launched in October 2007. The expense ratio is .25%.

AUM equal $162 million and average daily trading volume is 94K shares. As of late January 2012 the average dividend yield was 2.84% and YTD return .05%. The one year return was 14.30%.

Data as of April 2012
PLW Top Ten Holdings & Weightings

  1. US Treasury Bond 4.375%: 5.87%
  2. US Treasury Bond 4.375%: 5.64%
  3. US Treasury Bond 4.375%: 5.48%
  4. US Treasury Bond 3.75%: 5.48%
  5. US Treasury Bond 4.25%: 5.35%
  6. US Treasury Bond 4.75%: 5.32%
  7. US Treasury Bond 4.625%: 5.19%
  8. US Treasury Bond 3.125%: 4.96%
  9. US Treasury Bond 3.875%: 4.95%
  10. US Treasury Bond 4.5%: 3.88%

 

 


 

iShares Barclays Capital U.S. Agency Bond ETF 

AGZ follows the Barclays Capital U.S. Agency Bond Index. The fund was launched in November 2008. The expense ratio is .20%. AUM of $360M and average daily trading volume is less than 35K shares.

As of April 2012 the annual dividend yield was 1.22% and YTD return was -0.16%. The one year return was 4.45%.

Data as of April 2012
AGZ Top Ten Holdings & Weightings

  1. FNMA 2.25%: 5.78%
  2. FHLMC 1%: 4.70%
  3. FHLBA 4%: 4.39%
  4. FHLMC 0.5%: 3.98%
  5. FHLMC 4.5%: 3.90%
  6. FHLMC 4.375%: 3.53%
  7. FHLBA 3.625%: 3.45%
  8. FNMA 4.375%: 2.91%
  9. FHLMC 6.75%: 2.06%
  10. FHLMC 0.375%: 1.96%

 


 

iShares Barclays MBS ETF 

MBB follows the Barclays Capital U.S. MBS Index which measures the performance of investment grade fixed-rate mortgage-backed pass-through securities of GNMA, FNMA, and FHLMC. The fund was launched in March 2007. The expense ratio is .31%. (The fee is higher since the index requires more management given mortgage pass-through turnover.)

AUM equal $5.028M and average daily trading volume is 389K shares. As of April 2012 the annual dividend yield was 2.44% and YTD return was 0.26%. The one year return was 5.61%. (NOTE: The Fed has been buying and supporting prices for mortgage-backed securities and this may continue especially with another round of QE is announced.)

Data as of April 2012
MBB Top Ten Holdings

  1. GNMA 4%: 1.27%
  2. FNMA 5%: 1.15%
  3. FNMA 4.5%: 1.11%
  4. FNMA 4.5%: 1.02%
  5. FNMA 4.5%: 0.99%
  6. GNMA 5%: 0.96%
  7. GNMA: 0.84%
  8. GNMA 4.5%: 0.81%
  9. FHLMC 4.5%: 0.81%
  10. FNMA 4%: 0.81%

 


 

Mortgage-Backed Securities Index Vanguard 

The fund was launched in November 2009. The expense ratio is .15%. AUM equal $182.3M and average daily trading volume is 36K shares. As of April 2012 the annual dividend yield was 2.25% and YTD return was 0.79%.

The one year return was 6.07%.

Data as of April 2012
VMBS Top Ten Holdings

  1. CMT Market Liquidity Rate: 24.84%
  2. FNMA 4.5% TBA: 3.35%
  3. FNMA 4% TBA: 2.46%
  4. Gnma Ii 30yr Tba Jan: 1.64%
  5. Fhlmc Gd 30yr 4.0 Tba Ja: 1.29%
  6. FHLMC: 1.26%
  7. Gnma Ii 30yr Tba Jan: 1.10%
  8. GNMA 4.5%: 1.09%
  9. Gnma I 30yr 4.5 Tba Jan: 1.08%
  10. GNMA: 1.03%

 


 

iShares Barclays Capital U.S. Treasury Inflation Protected Bond ETFs 

TIP follows the index of the same name. The index includes all inflation-protected securities that have at least one year remaining to maturity, are rated investment grade, and have $250 million or more of outstanding face value. The fund was launched in December 2003. Individuals must recognize they must pay tax on imputed accretion. Further some could very well question the validity of current methodology of inflation calculations. At present we don’t believe current inflation protected securities make any sense for individual investors away from institutions.

The expense ratio is .20%. AUM equal $22M and average daily trading volume is under 1M shares. As of April 2012 the annual dividend yield was 3.18% and YTD return was 2.04%. The one year return was 12.40%.

Data as of April 2012
TIP Top Ten Holdings & Weightings

  1. US Treasury Note 1.125%: 6.80%
  2. US Treasury Note 2%: 5.32%
  3. US Treasury Note: 4.98%
  4. US Treasury Note 1.25%: 4.55%
  5. US Treasury Bond 2.375%: 4.48%
  6. US Treasury Bond: 4.36%
  7. US Treasury Bond 3.875%: 4.30%
  8. US Treasury Note 1.875%: 4.19%
  9. US Treasury Note 2%: 4.00%
  10. US Treasury Bond 3.625%: 3.88%

 

Alternative choices in the same category include STPZ and IPE.

PIMCO 1-5 Year U.S. Inflation-linked Treasury ETF (STPZ) follows the BofA Merrill Lynch Inflation Linked Treasury Index. It’s an unmanaged index consisting of U.S. issues with at least $1B in face value and duration as stated. The expense ratio is .20%. The fund was launched in August 2009. AUM equal $970M and average daily trading volume is 131K shares. As of April 2012 the annual dividend was yield was 2.38% and YTD return 1.39%. The one year return was 3.20%. (NOTE: A shorter maturity range accounts for less yield.)

SPDR Barclays Capital TIPs ETF (IPE) follows the Barclays Capital U.S. Government Inflation-Linked Bond Index which includes publicly issued, U.S. Treasury inflation –protected securities that have at least 1 year remaining to maturity on index rebalancing date, with an issue size equal to or greater than $500 million. The fund was launched in May 2007. The expense ratio is .18%. AUM equal $608 million and average daily trading volume is 101K shares. As of April 2012 the annual dividend yield was 3.91% and YTD return was 2.10%. The one year return was 12.19%.

 

 


 

iShares Barclays 20 Year+ Treasury ETF 

TLT follows the index of the same name. The fund was launched in July 2002. The expense ratio is .15%. AUM equal $3M and average daily trading volume is 8.8M shares. As of April 2012, the annual dividend yield was 2.60% and YTD return -3.64%. The one year return was 31.48%.

TLT was the earliest to launch, most popular and widely traded in this sector. Both Direxion and ProShares have inverse, leveraged long and short issues available to hedge and/or speculate.

Data as of April 2012
TLT Top Ten Holdings & Weightings

  1. US Treasury Bond 4.375%: 8.62%
  2. US Treasury Bond 4.625%: 8.40%
  3. US Treasury Bond 4.25%: 8.31%
  4. US Treasury Bond 4.375%: 8.15%
  5. US Treasury Bond 4.75%: 8.14%
  6. US Treasury Bond 4.375%: 7.96%
  7. US Treasury Bond 3.875%: 7.91%
  8. US Treasury Bond 3.75%: 7.78%
  9. US Treasury Bond 4.5%: 6.04%
  10. US Treasury Bond 4.25%: 5.71%

 



Barclays Capital U.S. Long Government Bond ETF 

VGLT follows the index of the same name. The index includes fixed income securities of the U.S. Treasury and U.S. government agencies. The fund was launched in November 2009. The expense ratio is .15%. AUM equal $58M and average daily trading volume is 12K shares. As of April 2012 the annual dividend yield was 2.65% and YTD return was -2.86%. The one year return was 26.20%.

ProShares and Direxion inverse and leveraged issues are decently paired with VGLT as well.

Data as of April 2012
VGLT Top Ten Holdings & Weightings

  1. US Treasury Bond 4.75%: 6.97%
  2. US Treasury Bond 4.625%: 6.46%
  3. US Treasury Bond 4.25%: 6.34%
  4. US Treasury Bond 4.375%: 5.40%
  5. US Treasury Bond 3.875%: 4.72%
  6. US Treasury Bond 3.75%: 4.66%
  7. US Treasury Bond 4.375%: 4.60%
  8. US Treasury Bond 4.375%: 4.23%
  9. US Treasury Bond 4.25%: 4.20%
  10. US Treasury Bond 4.5%: 3.55%

 


 

Barclays 10-20 year Treasury Bond ETF 

TLH follows the Barclays Capital U.S. 10-20 Year Treasury Bond Index which measures the performance of U.S. Treasury securities that have a remaining maturity of at least 10 years and less than 20 years. The fund was launched in January 2007. The expense ratio is .15%. AUM equal $429M, average daily trading volume is 73K shares. As of April 2012 the annual dividend yield was 2.10% and YTD return was -1.34%. The one year return was -1.34%.

Data as of April 2012
TLH Top Ten Holdings & Weightings

  1. US Treasury Bond 6.25%: 10.45%
  2. US Treasury Bond 6.125%: 9.33%
  3. US Treasury Bond 5.375%: 8.25%
  4. US Treasury Bond 6.25%: 6.59%
  5. US Treasury Bond 6%: 6.18%
  6. US Treasury Bond 7.125%: 5.19%
  7. US Treasury Bond 5.25%: 5.07%
  8. US Treasury Bond 6.875%: 5.06%
  9. US Treasury Bond 5.25%: 5.01%
  10. US Treasury Bond 7.25%: 4.96%


Vanguard Extended Duration Treasury Bond ETF 

EDV follows the Barclays Capital U.S. Treasury STRIPS 20-30 Year Equal Par Bond Index measures the investment return of Treasury STRIPS with maturities ranging from 20 to 30 years. A Treasury STRIP represents a single coupon or principal payment on a U.S. Treasury security that has been stripped into separately tradable components. The fund was launched in December 2007.

The expense ratio is .14%. AUM equal $167M and average daily trading volume is 32K shares. As of April 2012 the annual dividend yield was 5.60% and YTD return was -5.76%. The one year return was 53.25%.

Another choice for investors interested in maximizing capital gain returns with much higher risk is PIMCO Zero Coupon Treasury ETF (ZROZ).

Data as of April 2012
EDV Top Ten Holdings & Weightings

  1. U S Treas Bd Stripped Prin Pmt: 5.08%
  2. U S Treas Bd Stripped Prin Pmt: 3.02%
  3. U S Treas Bd Stripped Prin Pmt: 2.59%
  4. U S Treas Sec Stripped Int Pmt: 2.40%
  5. U S Treas Sec Stripped Int Pmt: 2.40%
  6. U S Treas Sec Stripped Int Pmt: 2.22%
  7. U S Treas Sec Stripped Int Pmt: 2.21%
  8. U S Treas Sec Stripped Int Pmt: 2.16%
  9. U S Treas Bd Stripped Prin Pmt: 2.11%
  10. U S Treas Sec Stripped Int Pmt: 2.11%

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Category: Fixed Income

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