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Is it time to invest in ETFs?

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For Mohamed El-Erian, chief economic adviser at Allianz SE, this is a good time to invest in ETFs. Since in this distorted market bonds and stocks fall alike, according to Jing Pan at Yahoo Finance.

“We need to get out of these distorted markets that have caused a lot of damage,” the famous economist told CNBC.

Both the stock and bond markets have slumped lately, and El-Erian points out that when these market corrections occur simultaneously, investors should switch to “risk-free” assets.

“What we have learned again since mid-August is that stocks and bonds can go down at the same time,” El-Erian said. “In a world like that, you have to look at short-term fixed income and cash as an alternative.”

You can hide your cash under a mattress or put it in a savings account. Or, you can use ETFs to take advantage of so-called “short-term fixed income.”

Vanguard Short-Term Bond ETF (BSV)

Vanguard is known for its low-cost ETFs that track major stock indices. Through these ETFs, investors can gain exposure to large portfolios of stocks.

The company does the same with bonds.

Check out the Vanguard Short-Term Bond ETF, which aims to track the performance of the Bloomberg 1-5Y US Government/Credit Float Adjusted Index.

The fund has a strong focus on US government bonds, which represented 68.2% of its holdings as of July 31. At the same time, it also invests in investment grade corporate bonds and international investment grade bonds denominated in dollars.

Right now, the SEC 30-day yield on BSV is 3.46%. The fund has a very low expense ratio of just 0.04%.

SPDR Portfolio Short Term Corporate Bond ETF (SPSB)

SPDR Portfolio Short Term Corporate Bond ETF is another low-cost option for investors looking to gain access to short-term bonds.

As its name suggests, the fund focuses on corporate bonds.

In particular, it tracks the Bloomberg US 1-3 Year Corporate Bond Index. In particular, corporate issues included in the index must be rated investment grade and have more than $300 million or more of face value outstanding.

At this time, SPSB has 1,196 shares with an average coupon of 3.06% and an average maturity of 2.04 years. The fund has exposure to three corporate sectors: financials (47.35%), industrials (47.19%) and utilities (5.42%). The remaining 0.04% of the portfolio is in cash.

The SEC 30-day yield on the ETF is 3.98%. And like the Vanguard fund, SPSB also has a low expense ratio of 0.04%.

Western Asset Short Duration Income ETF (WINC)

Western Asset Short Duration Income ETF is an actively managed fund. Management selects duration, sector and individual securities with the goal of reducing interest rate risk while providing an attractive income.

Basically, the fund focuses on investment grade corporate bonds. But management also looks for opportunistic exposures to add diversification and improve performance, such as through high-yield bonds, structured securities and emerging-market debt.

At this time, WINC has 255 holdings with a weighted average life of 3.40 years. Its 30-day SEC yield is 4.39%.

And because this ETF is actively managed, its expense ratio is higher, at 0.29%.


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