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3 Best Bond ETFs to Buy or Sell as You Navigate Today’s Market

Bond ETFs - 3 Best Bond ETFs to Buy or Sell as You Navigate Today’s Market

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Quarterly earnings typically bring increased volatility to equities, and October is proving to be no exception. When choppiness on Wall Street goes up, market participants pay more attention to exchange-traded funds (ETFs) that invest in bonds. Bond ETFs tend to provide a level of stability as regular stock prices shoot in any direction.

Most InvestorPlace readers are well familiar with bond funds giving access to various fixed-income assets. They include U.S. Treasuries, municipal bonds, sovereign bonds, corporate bonds, as well as high-yield bonds, also known as “junk” bonds. A number of ETFs also invest in multiple asset classes, such as bonds, stocks, commodities and real estate investment trust (REITs).

Currently, the U.S. 10-year Treasury yield—which moves inversely to prices—is sitting shy of 1.7%. In August, it was below 1.2%. Rising yields typically unnerve equity investors who then typically consider “parking” at least some of their cash in bonds.

With that information, here are three bond ETFs that could be appropriate for a range of investors:

  • iShares 1-3 Year Treasury Bond ETF (NASDAQ:SHY)
  • SPDR Bloomberg Barclays High Yield Bond ETF (NYSEARCA:JNK)
  • First Trust Multi-Asset Diversified Income Index Fund (NASDAQ:MDIV)

Bond ETFs to Buy or Sell: iShares 1-3 Year Treasury Bond ETF (SHY)

Wooden blocks with the word Bonds and coins.
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52-Week Range: $85.77 – $86.44
Yield To Maturity: 0.48%
Expense Ratio: 0.15% per year

Our first fund, the iShares 1-3 Year Treasury Bond ETF, gives access to short-term U.S. Treasury bonds with maturities from one to three years. Thus, investors do not need to worry about the credit risk of the issuer, i.e., the U.S. government. Since the fund’s inception in July 2002, net assets have reached $20.1 billion.

SHY, which currently has 78 holdings, tracks the ICE US Treasury 1-3 Year Index. This bond ETF has an average duration of 1.95 years. In other words, the price of the ETF would decrease close to 2% when interest rates go up by one percentage point.

So far in 2021, SHY is down 0.58%, and hit a 52-week low on Oct. 21. Readers might be interested to know that the 52-week high was seen exactly a year ago. Those investors who need to put their money in a safe asset in the coming weeks might want to do more due diligence on SHY.

SPDR Bloomberg Barclays High Yield Bond ETF (JNK)

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52-Week Range: $103.56 – $110.14
Yield To Maturity: 4.91%
Expense Ratio: 0.4% per year

The SPDR Bloomberg Barclays High Yield Bond ETF invests in U.S. dollar-denominated junk corporate bonds with above-average liquidity. Thus, despite the high yield offered by these bonds, this ETF may not be appropriate for all portfolios.

For instance JNK investors saw large losses in 2008 in early months of the financial crisis at the time. But the ETF then saw a significant price recovery as markets started going up in 2009.

JNK, which has 1,346 holdings, tracks the Bloomberg Barclays High Yield Very Liquid Index. The fund began trading in November 2007, and has around $8.74 billion in assets. Readers might remember JNK as one of the bond funds that the Fed had bought in 2020 in the early days of the pandemic.

In terms of the sub-sectoral breakdown, we see the Consumer Cyclical sector with 20.58%. Next in line are Communication (16.44%), Consumer Non-Cyclicals (14.74%), Energy (12.87%), and Capital Goods (8.41%).

The leading 10 holdings account for less than 3.5% of the fund. Almost half of the bonds are BB rated, followed by B (38.1%) and CCC or lower (12.06%).

Among the leadings names are bonds of aircraft part manufacturer TransDigm (NYSE:TDG), healthcare group Centene (NYSE:CNC), cruise operator Carnival (NYSE:CCL), American Airlines (NASDAQ:AAL) and gaming and hospitality group Caesars (NASDAQ:CZR).

In the past 12 months, the fund is up 2.9%, and saw a 52-week high on Sept. 23. JNK could appeal to some investors seeking high yields.

Bond ETFs to Buy or Sell: First Trust Multi-Asset Diversified Income Index Fund (MDIV)

Gold coins are stacked on top of a wooden block that says "BOND."
Source: Shutterstock

52-Week Range: $13.34 – $17.44
Dividend Yield: 4.79%
Expense Ratio: 0.68% per year

Our final fund, the First Trust Multi-Asset Diversified Income Index Fund, is not a pure-play bond ETF, but rather a multi-asset fund. Therefore, it could appeal to those who want or need to decrease exposure to equities. By investing in a fund like MDIV, they would have access to several asset classes through a single fund.

MDIV was first listed in August 2012, and net assets stand at $491 million. The fund tracks the returns of the NASDAQ US Multi-Asset Diversified Income Index, which only invests in U.S.-based assets. This index This index gets rebalanced quarterly.

The fund currently has 126 holdings. Its composition is as follows: Master Limited Partnerships, MLPs, (21.39%), REITs (19.98%), Dividend-Paying Equities (19.79%), Preferred Securities (19.51%) and High Yield Corporate Bond ETFs (19.38%).

Year-to-date, MDIV returned over 12% and saw a 52-week high in mid-June. Readers wishing to allocate some of their capital to several income-generating asset classes sectors should research the fund further.

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.


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