Year of the Bond ETF
By Ron DeLegge, Editor
December 3, 2007
SAN DIEGO (ETFguide.com) - It’s not easy to sum up another insane year in exchange-traded fund (ETF) investments. So much has been happening from all directions.
Remarkably, ETFs have infused energy into one of the old standby asset classes; fixed income, also known as bonds.
2007 began with just 14 bond ETFs, but heading into the last month of the year that figure climbed more than threefold to 47.
The median expense ratio of bond ETFs was an extremely affordable 0.20 percent. Compare that figure with the median average for bond mutual funds and you'll see that as a group, bond ETFs are a bargain.
Earlier in the year, the Vanguard Group introduced four ETFs covering Lehman Bond indexes. All of the funds carry rock bottom expense ratios ranging from 0.11 to 0.13 percent – a boon for stingy bond investors.
Also noteworthy was the introduction of munibond ETFs. The municipal bond landscape has long been known for it’s inefficiency and a lack of financial transparency. Maybe munibond ETFs can reverse some of that.
Barclays Global Investors introduced the iShares S&P National Municipal Bond Fund (Ticker: MUB) along with two state specific munibond ETFs - California (Ticker: CMF) and New York (Ticker: NYF)
Soon thereafter, State Street Global Advisors responded by launching the SPDR Lehman Municipal Bond ETF (Ticker: TFI) and three other muni funds.
PowerShares got in on the fixed income action too.
The Lisle, IL-based company introduced a suite of bond ETFs, including one that covers emerging markets debt (Ticker: PCY).
Besides a broader spectrum of choice, bond ETFs have raised the bar by lowering investment costs. Think about it. If low expense ratios matter with equity funds, and they do, it’s safe to argue that they’re just as crucial for bond investors. Historically, bonds have delivered substantially lower returns versus equities over the long run. This means curtailing expenses for bond investments should be a high priority for all investors.
There's no doubt bond ETFs are poised to make a huge impact in coming years.
In the meantime, history should remember 2007 as "Year of the Bond ETF."