Exchange-Traded Funds For Dummies
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There are about 150 bond ETFs, most of them introduced in the past five years. They are issued by iShares, Market Vectors, PIMCO, PowerShares, State Street SPDRs, Vanguard, iPath, Guggenheim, and WisdomTree.

The U.S. Securities and Exchange Commission is sitting on applications for many other fixed-income ETFs, including a dozen or so additional funds from PIMCO (a mutual fund company famous for its bond management) and another two dozen or so from State Street SPDRs. So not only do you have many choices today, but also many more choices are coming.

The current yield is how much each share is paying as a percentage of your investment. With the discussion of each bond ETF, the current yield is included to give you a flavor of how the yields differ among the funds.

Current yields on a bond or bond fund, especially a long-term bond or bond fund, can change dramatically from week to week. So, too, can the difference in yields between short- and long-term bonds (known as the yield curve).

You can check the current yield of any bond fund, as well as the yield curve, on the sites of the ETF providers themselves or on general investing sites such as Morningstar. One great site for all sorts of information on bonds, including yields for all bond categories, is Investing in Bonds.com.

Note that several different kinds of bond yield exist. For the sake of consistency, the bond yield used here is the “SEC 30-Day Yield.”

Here’s what this yield essentially means: If you (or the fund manager) were to hold to maturity each and every one of the bonds in a fund’s portfolio, as it stood over the past 30 days, and reinvest all interest payments (that is, you plow those interest payments right back into your bond portfolio), your SEC yield is what you’d get over the course of a year.

It takes into account all fund fees and expenses. The formula was created, and the methodology is enforced, by the U.S. Securities and Exchange Commission, which is where the “SEC” in the formula’s name comes from.

One added advantage of bond funds over individual bonds — very often overlooked by fans of individual bonds — is that you have the option of automatically reinvesting your interest payments. You can’t do so with individual bonds, where your interest payments (if you don’t spend the money right away) wind up going into your cash position (typically a money market fund).

Numerous investors who buy individual bonds allow their interest payments to accumulate into humongous piles of very low-interest-paying cash. These people would likely have done considerably better in bond funds.

About This Article

This article is from the book:

About the book author:

Russell Wild, MBA, an expert on index investing, is a fee-only financial planner and investment advisor and the principal of Global Portfolios. He is the author or coauthor of nearly two dozen nonfiction books.

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