Getting More Income From Your ETF Bond Investments

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May 11, 2009 3:51pm NYSE:AGG NYSE:HYG

bondsThese are trying times for income oriented investors. Interest rates are still stuck at record low levels which means lower income generated from bonds and other fixed income investments.

U.S. Treasuries with a 10-year maturity are yielding just 3.20%, which isn’t much over the lifetime of the investment, especially after deducting the cost of taxes and any potential for re-inflation. The interest rates being paid by bank certificates of deposit (CDs) is also down. According to BankRate.com, today’s national average 1-year rate for bank CDs is just 2.20%.What can bond investors do?

Bonds, like stocks, come in many different varieties. Government bonds are issued by U.S. or foreign governments, municipal bonds are issued by cities, states and local governments, corporate bonds are issued by companies and there are also asset-backed securities, mortgage backed securities and convertible bonds along with Treasury Inflation Protected Securities (TIPS). Diversifying your bond portfolio is one strategy to gain more income and to reduce market risk.

Let’s briefly evaluate 5 bond ETFs that can help you to generate more income from your bond investments.

iShares Barclays Aggregate Bond Index Fund (NYSEArca: AGG)
The performance and yield of AGG are linked to the widely followed Barclays U.S. Aggregate Bond Index. The index measures the U.S. investment grade bond market, which includes investment grade U.S. Government bonds, investment grade corporate bonds, mortgage pass-through securities and asset-backed securities. With almost $10 billion in assets, AGG is the largest bond ETF and it carries a yield in the vicinity of 4.5%. Year-to-date, AGG has declined 2.09%*. In 2008, AGG gained 5.88% and the fund’s annual expense ratio is 0.24%.

iShares iBoxx $ High Yield Corporate Bond Fund (NYSEArca: HYG)
HYG is benchmarked to the iBoxx $ Liquid High Yield Index, which is designed to provide a balanced representation of the U.S. dollar-denominated high yield corporate bond market through some of the most liquid high yield corporate bonds available. The number of bond issues within HYG is typically 50, although this may change from time to time. The fund has close to $2.13 billion in assets and carries a juicy yield of 11.56%. Year-to-date, HYG has increased by 5.35%. In 2008, HYG fallen 23.86% and the fund’s annual expense ratio is 0.50%.

Full Story:  http://www.etfguide.com/commentary/544/Getting-More-Income-from-Your-Bond-Investments/



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