Home > A List Of The Top Ten (10) Total Bond Muni Preferred ETFs (AGG, BND, BSV, SHY, PFF)
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A List Of The Top Ten (10) Total Bond Muni Preferred ETFs (AGG, BND, BSV, SHY, PFF)

October 12th, 2011

David Fry: This posting completes a comprehensive review in the fixed-income ETF segment. While this review seems a grab-bag collection of issues, we like keeping the list of choices at 10. This seems more manageable for most investors. We’re not necessarily recommending one issue over another and where other interesting choices exist we mention them within each featured issue’s review. Let’s remember, in the fixed-income sector there are many choices but with many being repetitive it’s not necessary to cover them all. Each sponsor might disagree naturally.

Our goal is to cover the most important ETFs within each category using high assets under management, liquidity and/or strategies that make a difference the critical tests. Newer issues tied to new indexes with long (over 5 years) of historical data may be worth investigating, featuring and using if warranted.

We’ll begin our review with Total Bond ETFs which have the characteristic of incorporating many different maturities and issues into one all-inclusive issue.

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Data as of October 2011

AGG Top Ten Holdings & Weightings

  1. US Treasury Note 4.75%: 3.75%
  2. US Treasury Bond 7.5%: 2.59%
  3. US Treasury Note 3.625%: 2.48%
  4. US Treasury Note 3.125%: 2.34%
  5. US Treasury Bond 8.125%: 2.06%
  6. US Treasury Note 3.375%: 1.91%
  7. FHLMC 4.5%: 1.86%
  8. US Treasury Bond 7.625%: 1.53%
  9. US Treasury Bond 4.625%: 1.36%
  10. US Treasury Note 2.375%: 1.24%

Vanguard Total Bond Market ETF (NYSE:BND) follows the Barclays U.S. Aggregate Bond Index. The fund was launched in March 2003. The expense ratio is .12% or nearly half that of AGG. Given the index, you’ll not find much variation in holdings, durations or credit quality. AUM equal $11.7 billion and average daily trading volume is 1.3M shares. As of mid-September 2011 the annual dividend was $1.12 making the current yield is around 1.35% and YTD return 4.35%.

You should also note Vanguard offers Vanguard Short-Term Bond ETF (NYSE:BSV) which would compete nicely with previously featured iShares Short-Term Treasury ETF (NYSE:SHY)

Data as of September 2011

BND Top Ten Holdings & Weightings

  1. CMT Market Liquidity Rate: 4.85%
  2. US Treasury Note 0.625%: 1.40%
  3. US Treasury Note 1.75%: 1.04%
  4. US Treasury Bond 6.25%: 0.94%
  5. US Treasury Note 1.375%: 0.85%
  6. US Treasury Note 1.375%: 0.80%
  7. US Treasury Note 1%: 0.80%
  8. US Treasury Note 1.875%: 0.77%
  9. US Treasury Note 0.375%: 0.62%
  10. US Treasury Note 2.75%: 0.60%

iShares Barclays Government/Credit Bond ETF (NYSE:GBF) follows the Barclays Capital U.S. Government/Credit Bond Index. This ETF follows a wide range of bond issues with maturities greater than 1 year with roughly 47% below 5 years and balance evenly spread beyond. Over 65% of the assets are AAA rated with the balance investment grade except for 1.25% non-rated. The fund was launched in January 2007. The expense ratio is .20%. AUM equal $112M and average daily trading volume is less than 4K shares. As of mid-September 2011 the annual dividend was $1.43 making the current yield 1.26% and YTD return 4.52%.

Data as of September 2011

GBF Top Ten Holdings & Weightings

  1. US Treasury Note 4.625%: 6.47%
  2. US Treasury Note 4.75%: 6.15%
  3. US Treasury Note 3.625%: 5.93%
  4. US Treasury Bond 7.625%: 3.05%
  5. US Treasury Note 2%: 2.85%
  6. US Treasury Note 2.375%: 2.68%
  7. US Treasury Note 1.375%: 2.49%
  8. US Treasury Bond 4.5%: 2.39%
  9. US Treasury Note 1.25%: 2.31%
  10. US Treasury Note 1.25%: 2.31%

iShares S&P National Municipal Bond ETF (NYSE:MUB) follows the investment grade AMT-free segment of the municipal bonds nationally. The expense ratio is .25%. AUM equal $2.2 billion while average daily trading volume is 126K shares. Despite controversy regarding local governments’ fiscal soundness and some warning of defaults, investors may hate taxes and love tax-free yield more. As of mid-September 2011 the annual dividend yield is 3.68% and YTD return is 6.85%.

Investors could consider other national municipal bond ETFs from SPDR with SPDR Nuveen Barclays Capital Municipal Bond ETF (NYSE:TFI). Some sponsors offer municipal ETF issues based on individual state needs (New York, California and etc).

Data as of September 2011

MUB Top Ten Holdings & Weightings

  1. California St Go Bds 6%:      0.83%
  2. California St Dept Wtr Res Pwr Wtr 5.75%: 0.62%
  3. North Tex Twy Auth 5.125%:      0.48%
  4. Puerto Rico Sales Tax Fing Cor Rev Bd 6%: 0.47%
  5. California St Go Bds 5%:      0.44%
  6. Greenville Cnty S C Sch Dist 5.5%: 0.41%
  7. Illinois St Toll Hwy Auth 5%: 0.41%
  8. Salt River Proj Ariz Agric Imp Elec S 5%:      0.40%
  9. Illinois St Toll Hwy Auth 5%: 0.39%
  10. California St G O Bds 6%:      0.38%

PowerShares Build America Bonds ETF (NYSE:BAB) tracks the BofA Merrill Lynch Build America Bond Index which is part of stimulus program launched by the Obama administration. These bonds are hybrid securities and have the unique position of being taxable under the guidelines linked HERE.  BAB’s securities are 35% underwritten by the Federal government as to interest payments. These bonds have been extremely popular with institutional investors, particularly insurance companies. The fund was launched in 2009. The expense ratio is.35%. AUM equal $600M while average daily trading volume is 225K shares. As of mid-September 2011 the annual dividend is $.72 making the current yield 2.58% and YTD 14.11%.

Data as of September 2011

BAB Top Ten Holdings & Weightings

  1. Chicago Ill O Hare Intl Arpt      R Ge 6.395%: 2.59%
  2. California St Go Bds 7.3%:      1.60%
  3. New York N Y Go Bds 5.968%:      1.57%
  4. California St Go Bds 7.55%:      1.52%
  5. New York St Twy Auth 5.449%:      1.27%
  6. New Jersey St Tpk Auth      7.414%: 1.24%
  7. Cowlitz Cnty Wash Pub Util Dis El 6.884%: 1.15%
  8. Miami-Dade Cnty Fla Spl Obl      Cap A 6.743%: 1.12%
  9. New Jersey St Transn Tr Fd Aut      Tr 5.754%: 0.96%
  10. Dallas Tex Area Rapid Tran Sal Sa 5.999%: 0.90%

Van Eck High Yield Municipal Bond ETF (NYSE:HYD) follows the Barclays Capital Municipal Custom High Yield Composite Index. In fact, Van Eck has quite a family of municipal bond offerings including: Long Municipal Index ETF (NYSE:MLN), Intermediate Municipal Bond ETF (NYSE:ITM), Pre-Refunded Municipal Bond ETF (NYSE:PRB) and Short-term Municipal Index ETF (NYSE:SMB). HYD has a 25% weighting in investment grade (BBB) bonds and 75% in non-investment grade issues. The expense ratio is .35%.  AUM equal $265M with average daily trading volume in excess of 90K shares. The average duration is over 10 years with a 12 month yield of 6.2%, which is pretty good after tax. As of mid-September 2011 the annual dividend yield was $.73 making the current yield 2.49% and YTD return 4.02%.

Data as of September 2011

HYD Top Ten Holdings & Weightings

  1. Texas Private Activity Bd      Surf Sr Lie 7%: 2.60%
  2. New Jersey Econ Dev Auth 6.625%: 2.42%
  3. Washington St Hsg Fin Commn No Nonp 5.1%: 1.82%
  4. Illinois Fin Auth 5.5%: 1.64%
  5. Red River Auth 6.7%: 1.45%
  6. Nassau Cnty N Y Indl Dev Agy C Reti 6.7%: 1.44%
  7. Central Tex Regl Mobility      Auth 6.25%: 1.41%
  8. Guam Govt Wtrwks      Auth 5.875%: 1.40%
  9. South Carolina Jobs-Economic D Hos      5.25%: 1.39%
  10. Illinois Fin Auth 8%: 1.31%

S&P U.S. Preferred Stock Index (NYSE:PFF) tracks the index described parenthetically. Typically, most preferred issues will feature mostly financial companies as index constituents. PFF is no exception with nearly 85% of holdings from financial companies. This concentration is a risk factor investors need to consider. The fund was launched in March 2007. The expense ratio is .48%. AUM equal $7.2 billion and average daily trading volume is 2M shares. As of mid-September 2011 the annual dividend was $1.12 making the current yield 3.05% and YTD retuen -4.30%.

Data as of September 2011

PFF Top Ten Holdings & Weightings

  1. General Mtrs Cv: 2.57%
  2. Hsbc Hldgs Pfd: 2.43%
  3. Barclays Bank      plc (BCS.PD): 1.88%
  4. Bk Amer Pfd: 1.54%
  5. Wells Fargo      & Co, San Francisco Ca Pfd: 1.52%
  6. Citigroup Cap      Viii Pfd: 1.43%
  7. Bk Amer Pfd: 1.42%
  8. Metlife Pfd: 1.42%
  9. Countrywide Cap      V Pfd: 1.34%
  10. Citigroup Cap      Xii Pfd: 1.30%

PowerShares Financial Preferred ETF (NYSE:PGF) follows the Wachovia Hybrid & Preferred Securities Financial Index. As with most preferred ETFs the index is dominated by financials. Quality ratings put most of the assets in the A to BB category. The fund was launched in December 2006. The expense ratio is .60%. AUM equals $1.5 billion and average daily trading volume is roughly 750K shares. As of mid-September 2011 the annual dividend was $1.14 making the current yield 6.80% and YTD return -4.25%.

Data as of September 2011

PGF Top Ten Holdings & Weightings

  1. HSBC Hldgs Pfd: 10.14%
  2. Bk Amer Pfd: 7.55%
  3. HSBC Hldgs Pfd: 5.76%
  4. Ing Group N V Pfd: 5.47%
  5. Bk Amer Pfd: 4.77%
  6. Wells Fargo & Co, San Francisco Ca Pfd: 4.53%
  7. JP Morgan Chase Pfd: 4.49%
  8. Credit Suisse Guernsey Brh      Pfd: 4.42%
  9. Metlife Pfd: 4.36%
  10. Ing Group Nv Pfd: 3.83%

PowerShares Preferred ETF (NYSE:PGX) follows the BofA Merrill Lynch Core Fixed Rate Preferred Securities Index with the primary difference a slight exposure to U.S. bonds. The fund was launched in January 2008. The expense ratio is .50%.  AUM equal $1.3 billion and average daily trading volume is 535K shares. As of mid-September 2011 the annual dividend was $.96 making the current yield 6.6% and YTD return -.91%.

Data as of September 2011

PGX Top Ten Holdings & Weightings

  1. Wells Fargo & Co, Pfd  4.96%
  2. Barclays Bank Pfd  4.53%
  3. Citigroup Cap XIII Pfd  4.12%
  4. Citigroup Cap XIII Pfd  4.09%
  5. JP Morgan Chase Pfd  3.79%
  6. HSBC Hldgs Pfd  3.65%
  7. Morgan Stanley VII Pfd 3.57%
  8. HSBC Hldgs Pfd  3.41%
  9. BofA Pfd  3.39%
  10. BofA Pfd  3.31%

SPDR Convertible Bond ETF (NYSE:CWB) is linked to the Barclays Capital U.S. Convertible Bond > $500M Index which follows only those convertible bond issues with sizes greater than $500M. The issue was launched in April 2009. The expense ratio is .40%. AUM equal $740M with average daily trading volume 260K shares. As of mid-September 2011 the annual dividend of $.78 making the current yield 3.86% and YTD return -8.05%.

Data as of September 2011

CWB Top Ten Holdings & Weightings

  1. Wells Fargo & Co, San Francisco Ca Pfd: 3.58%
  2. General Mtrs Cv: 3.51%
  3. Citigroup Pfd: 2.69%
  4. Bk Amer Pfd: 2.55%
  5. Chesapeake Engy Cv 2.5%: 2.42%
  6. E M C Corp Mass Cv 1.75%:      2.30%
  7. Metlife: 2.24%
  8. E M C Corp Mass Cv 1.75%:      2.15%
  9. Amgen Cv 0.375%: 2.13%
  10. Medtronic Cv 1.625%: 2.00%

This report may seem a hodgepodge of three separate areas and it is. But, there just aren’t enough distinct ETF products in these categories for one report. The only exception could be municipal bonds where the category is expanding. Mentioned within the muni category were several Van Eck and SPDR products. Perhaps this area will be spun-off to its own category in the future.

Once again we’ve chosen to keep the list to 10 although other issues are and will continue to make their presence felt. All of this is a matter of choice for any investor. The real choice here remains in other factors beyond maturity risk but consider credit quality assessment risk.

While the quest for yield given periodic stock market loathing and changing demographics dominate investment preferences, investors are advised to recognize added risks with heavy financial sector concentration with preferred shares. Even should global interest rates drop due to economic weakness this may not transfer to weaker credits as some may suffer serious declines in such an environment. This has happened frequently.

Municipal bonds are under increasing pressure to avoid default threats articulated by some pundits as likely given weak tax receipts particularly with smaller municipalities and revenue bond structures. General obligation bonds require the issuer to raise taxes and/or cut spending to meet interest and principal payments as holders stand first in line ahead of salaries to bureaucrats and civil servants.

As stated with other sectors, remember ETF sponsors must issue and their interests aren’t aligned with yours. They have a business interest and wish to have a competitive presence in any popular sector.

As stated with other sectors, remember ETF sponsors must issue and their interests aren’t aligned with yours. They have a business interest and wish to have a competitive presence in any popular sector.

For further information about portfolio structures using technical indicators like DeMark and other indicators see www.etfdigest.com. You may follow us on Facebook as well and join our group conversations.

Written By David Fry From ETF Digest The ETF Digest has positions in Lazy portfolios for BND, BSV and PFF.

David is founder and publisher of ETF Digest and best selling book author of Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management published by Wiley Finance in 2008.  In July of 2009, Fry was named in the ETF Hall of Fame as one of the Top 25 people who revolutionized the ETF industry and guided ETF investing from its conception to widespread acceptance among all breeds of investors. Fry founded the ETF Digest in 2001 and was among the very first to see the need for an online publication that provided individual investors and financial professionals with trading tools, market information and actionable advice on ETF investing.  ETF Digest was recently ranked 9th in the Top 100 ETF websites from Alexa on exchange traded funds. Dave Fry has devoted over 35 years to the business of trading and portfolio management. He is registered as an arbitrator with the Financial Industry Regulatory Authority (FINRA) and the National Futures Association (NFA).

 


NYSE:AGG, NYSE:BND, NYSE:BSV, NYSE:HYD, NYSE:MLN, NYSE:PFF, NYSE:SHY


 

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  1. Peter Reed
    November 10th, 2011 at 12:04 | #1

    Where do you get $1.12 annual distribution for PFF? It is on track to be $2.40 for calendar year 2011 and was much higher in previous years. This factual error throws into question your whole report.

  2. Peter Reed
    October 21st, 2011 at 13:11 | #2

    PFF’s yield is 7.32% (not 3.05% as reported by story)… see iShares link for distribution information.

    http://us.ishares.com/product_info/fund/overview/PFF.htm?cmp=Exact_Tickers%20New&chn=PPC&c=Google&kw=pff&gclid=CJDyj5Ci-qsCFQtb7AodjBRBqg

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