While long-term Treasury bond ETFs have been the worst hit by the taper talk, the sell-off has hit almost all categories. There are a number of bond ETFs to watch in this space, but investors could keep a close eye on the ETF that provides broad exposure to the bond market (read: 3 Bond ETFs Popular in the ‘No Taper’ Aftermath).
The PIMCO Total Return ETF (NYSEARCA:BOND) is by far the largest actively managed bond ETF with a total asset base of $3.6 billion and an annual fee of 55 bps. The fund provides significant exposure to mortgage-backed securities (66%) and Treasury bonds (21%).
About three-fifths of BOND’s portfolio focuses on mid-term securities ranging from 3–5 years and 5–10 years. Hence, the fund would be in danger if the rates continue to rise. The ETF lost over 1.5% in the year-to-date time frame and pays a decent 1.64% in terms of its 30-Day SEC yield.
The utility sector has seen a rough patch over the past few weeks after the return of taper talk. Being defensive, the utility stocks pay outsized yields and when interest rates rise, these become less attractive dulling the appeal of utilities across the board.
However, if Fed holds off on the taper, the sector would be back on track with smooth trading ahead. While there are enough choices in the space, investors should closely watch the ultra-popular Utilities Select Sector SPDR (NYSEARCA:XLU) and the Vanguard Utilities ETF (NYSEARCA:VPU).
With AUM of over $4 billion, XLU provides exposure to a small basket of 31 securities with nearly 58% concentration on the top 10 firms. The ETF charges 0.18% in expenses and trades in heavy volume of nearly 11 million shares a day.
On the other hand, VPU has amassed nearly $1.3 billion in assets and charges 14 bps in annual fees. The fund is home to 78 securities and the top 10 companies hold about 46% of total assets. While both the products delivered double-digit returns year-to-date, they have lost over 2.5% since November.
This article is brought to you courtesy of Eric Dutram.