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2016 | OriginalPaper | Buchkapitel

5. Jumping on the Bond ETF Wagon

verfasst von : A. Seddik Meziani

Erschienen in: Exchange-Traded Funds

Verlag: Palgrave Macmillan UK

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Abstract

The debut of fixed-income exchange-traded funds (ETFs) in 2002–2003 was anxiously anticipated by investors, who regard bonds as an essential part of a diversified portfolio. After a slow start that lasted a few years, bond ETFs suddenly started being issued in droves. Even the deep 2008–2009 financial crisis, which had quite an impact on their equity counterparts, didn’t slow down their relentless growth.

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Vorheriges Kapitel Understanding the Complex Universe and Role of Fixed-Income Funds as Investment Vehicles

Nächstes Kapitel Smart-Beta ETFs: Market Growth and Performance Trends

See www.iShares.com.

Bond index funds often use sampling strategies because the funds face rebalancing difficulties, given that bonds are continually dropped from the index as their maturities fall below one year. Indeed, before the advent of modern technology and the growth of program trading, it was inefficient (and expensive) for many bond index funds to fully replicate.

iShares is currently managed by BlackRock, which purchased it from Barclays on June 11, 2009 in a $13.5 billion mixed cash-stock deal.

www.xtf.com

Portfolio managers widely sold their high-yield funds, particularly in July 2014, over worry that their prices had risen too much.

XTF Inc. reported $9.75 billion in AUM for JNK in March 31, 2014.

The larger database may be requested from its provider.

Note that not all of their total return comes from income. To start with, a portion of the return comes from capital gains, which have been pushed steadily higher by investors seeking higher returns. Add to that the fact that these capital gains may also be taxed at a lower rate than ordinary income for higher tax bracket investors. Finally, this performance was boosted by default rates that were much-lower-than-expected even when the economy struggled. Investors must be aware that default figures could be distorted by fund managers capable of cleansing their portfolios of bonds on the brink of default and replace them with new bonds, all for the sake of avoiding an unwanted downgrade.

Eichengreen, B., P. Donghyun, and S. Kwanho, “When Fast Growing Economies Slow Down: International Evidence and Implications for China,” NBER Working Paper No. 16919 (2011) (Cambridge, MA: National Bureau of Economic Research), www.nber.org/papers/w16919.

Aslund, A., “Why Growth in Emerging Economies Is Likely to Fall,” Working Paper No. 13–10 (2013) (Washington, DC: Peterson Institute for International Economics).

Abiad, A., J. Bluedorn, J. Guajardo, and P. Topalova, “The Rising Resilience of Emerging Market and Developing Economies,” IMF Working Paper No. 12/300 (2012) (Washington, DC: International Monetary Fund); Subramanian, A., “Too Soon to Mourn Emerging Markets,” Financial Times (October 7, 2013), www.ft.com/cms/s/0/8604dd58-2f35-11e3-ae87-00144feab7de.html#axzz2v1gYigdT; and de la Torre, Augusto, Eduardo Levy Yeyati, and S. Pienknagura, “Latin America’s Fashionable Scepticism: Setting the Record Straight,” VoxEU (January 12, 2014), www.voxeu.org/article/overstated-pessimism-over-latin-america.

Formerly known as the Lehman Aggregate Bond Index, it is now known as Barclays U.S. Aggregate Bond Index, taking the name of Barclays Capital, which maintains it after taking over the index business of now-defunct Lehman Brothers.

The largest source of tracking error stems from the fees and expenses that must be deducted from an ETF’s total return. Even if the ETF perfectly replicates its index, as is the case for SPY, it will still have a small tracking error reflecting the fund’s expense ratio.

In Chap. 4, we noted that high-yield bonds have more of the characteristics of stocks than bonds.

This chapter deliberately avoids the use of the MSCI EAFE Index, compiled by Morgan Stanley Capital International (MSCI) and routinely used by portfolio managers as a benchmark for the performance of 21 major international equity markets including the United States. The potentially high influence that its share of U.S. stocks can exercise on its performance can defeat the purpose of a meaningful international diversification.

Dancey, C., and J. Reidy, Statistics Without Maths for Psychology: Using SPSS for Windows, 3rd edition (2004), London: Prentice Hall.

Titel: Jumping on the Bond ETF Wagon
verfasst von: A. Seddik Meziani
Verlag: Palgrave Macmillan UK
Buch: Exchange-Traded Funds
Print ISBN: 978-1-137-39094-3

Electronic ISBN: 978-1-137-39095-0

Copyright-Jahr: 2016
DOI: https://doi.org/10.1057/978-1-137-39095-0_5