Proprietary Data Insights
Financial Pros Top Bond Market ETF Searches This Month
Gold Bond? More Like Gross Bond.
With the interest rates rising, and the Fed fighting like hell to keep inflation at bay. No asset class has been safe.
Crypto got clobbered and stocks struggle every day.
Inflation is running high with fears of a recession growing by the day.
Is your stock portfolio ready to weather the storm?
One investment class financial advisors often tell their clients to get exposure to is the bond market.
And of the easiest ways to do that is through the ETF iShares 20+ Year Treasury Bond ETF (TLT).
That seems to be the advice being doled out by financial pros as they search out the TLT more than any other bond ETF by nearly 4x.
But the old adage may have met its match. And whiffs of an early 80’s style bond route make us think the pain for fixed income isn’t over yet.
iShares 20+ Year Treasury Bond ETF (TLT) is designed to give investors exposure to long-term US Treasury bonds.
It tries to resemble the investment results of an index composed of U.S. Treasury bonds with remaining maturities greater than twenty years.
In fact, 99.9% of the holdings in TLT are U.S. Treasury.
Government bonds are traditional safe-haven investments. They are intended to outperform stocks. But are typically recommended for a diversified portfolio.
For example, suppose someone is approaching retirement age and drawing from their investments to pay for their life. In that case, being in an all-stock portfolio can be risky, especially if there is a market correction like the one we experienced in 2022.
People favor U.S. bonds as riskless investments since the U.S. government has never defaulted on its debt. And if they ever do, there are probably bigger problems to worry about.
When the markets experienced the COVID crash of 2020, TLT actually held up well as the Fed gobbled up debt to keep credit markets solvent.
However, TLT is down year-to-date, just as much as the stock market. That’s because we’ve seen unprecedented inflation. Inflation reduces the purchasing power of goods, services, and assets priced in dollars.
Now, if you invested $10,000 in TLT ten years ago, it would be worth a little over $11,000. Not exactly mind-blowing returns. The most you would have been down in that ten-year period is about 16%, and the most up would have been north of 60%.
To fight inflation, the Fed has and plans to keep driving up interest rates. In turn, that pushes up interest rates for U.S. bonds, which means their prices go down.
And as of now, the Fed expects to hike rates even if it creates a recession.
TLT was founded by BlackRock in 2012 and has over $20.7 billion in net assets funded. It pays a $2.32 annual dividend to shareholders and charges a 0.15% management fee.
That makes it a cheap option for the average investor with some of the lowest expense ratios out there.
TLT is one of the most actively traded ETFs. It averages around 22 million shares in daily trading volume. And traders can also play TLT with options if that’s more your pace. They too are among the most actively traded options.
The largest government bond ETF in terms of total assets is the iShares 1-3 year Treasury Bond ETF (SHY) with more than $26 billion. YTD SHY is down 2.9%. SHY gives investors exposure to short-term U.S. Treasury bonds.
Blackrock also offers the iShares 7-10 year Treasury Bond ETF (IEF). It has net assets of more than $22 billion.
Of course, you can also mix it up with the iShares U.S. Treasury Bond ETF (GOVT) which attempts to give investors exposure to the U.S. Treasuries ranging from 1-30 years in maturity.
Generally speaking, moving up the maturity curve to nearer dated Treasury bonds comes with lower yields.
However, as a recession looms ahead of us, parts of the yield curve have inverted, with the 2-year treasury yield exceeding the 10-year treasury yield for example.
Our Opinion – 6/10
TLT is one way to diversify your portfolio. However, don’t expect much alpha from it. But given that it is down more than 20% YTD, we think it’s a buying opportunity at these levels.
According to Senior Living, from now until 2030, 10,000 baby boomers each day will hit retirement age. An aging population will be less risk-averse and seek investments that offer income opportunities.
TLT is a great option for bond investors most of the time. However, we aren’t comfortable with setting foot in any debt market until the Fed eases off the rate hike throttle.
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