4 Characteristics of Bond ETFs

Four Characteristics of Bond ETFs

Bonds are an important allocation category in investments and investors have become increasingly focused on this asset class. Introducing now: bond ETFs.

Bond ETFs have grown from six $20 billion ETFs in 2006 to more than 500 today, according to the data. Total assets exceeded $290 billion, growing much faster than equity ETFs over the same period.BlackRock, the world's leading asset manager, released the The study also shows that bond ETFs are becoming increasingly popular with investors, with assets in bond ETFs as of the end of 2012 While size only accounts for 17% of all ETFs in the market, 30% of net inflows to various ETFs in 2012 Invest in bond ETFs.

There are several aspects of bond ETFs that investors should be aware of.

First, bond ETFs have clear fixed-income traits that make them good instruments for asset allocation.

Secondly, the on-market "T+0" trading mechanism of bond ETFs is flexible in operation and highly efficient in capital turnover. Bond ETFs can be bought and sold on the exchange on the same day with no limit on the number of trades in a day. The advantages of this trading facility not only contribute to the timely and effective implementation of investment strategies, but also increase the use of funds in margin accounts. Efficiency.

Third, bond ETFs have low trading costs and ample liquidity. Bond ETFs are traded on the floor at a cost similar to the trading commissions of buying and selling stocks and will generally be lower than a regular bond fund's The cost advantage of the subscription redemption fee is obvious

Fourth, bond ETFs can be used for arbitrage operations. On the one hand, bond ETFs can be traded not only on the exchange but also redeemed over-the-counter, when there is a discount between the two markets or At premiums, investors can engage in on and off-market carry trades. On the other hand, looking at the bond ETFs that are currently listed or about to be listed, some of the bonds covered span the interbank market and the exchange market, as the two domestic markets are clearly separated, even the same type of bond can be valued differently, while the bond The existence of ETFs provides realistic operating possibilities for cross-market arbitrage.

Classification and Benefits of Bond ETF Funds

Bond ETFs are ETFs that use bond indices as the tracking object, and can be divided into single market according to the operation mode of bond ETFs. Physical bond ETFs and cash bond ETFs. single-market physical bond ETFs, which are the constituent securities of the bond indexes tracked by the Cash bond ETFs, which are ETFs that track a bond index, a bond index, and a bond portfolio. Investors use the full amount of cash to purchase ETFs for redemption.

Low management fees.ETFs are generally indexed for passive investing and have relatively low management fees. Globally, actively managed bond funds have management fees between 0.5% and 0.9%, while bond ETFs' The management fee rate is typically around 0.15%. etfunds.com believes that due to the low expected returns of bond funds themselves, the Differences in management fees became a significant factor in the holders' returns.

High revenue certainty. Another advantage of indexed investing is that it reduces the risk of lower-than-expected returns due to mismanagement by fund managers. In other words, actively managed bond funds can outperform bond indices through aggressive allocation and individual coupon selection ETFs.com compares the bond ETFs to the two. Returns are more certain and predictable.

Transaction convenience. Open-end bond funds are mainly traded through over-the-counter purchases and redemptions, which are usually time-consuming, with domestic open-end bond funds being the most popular. For example, for bond funds, the application for purchase will be submitted on T day, the fund shares will be available on T+2 day, and the redemption application will be submitted on T day, 5-7 working days. The funds will only arrive afterwards. For investors, delays in settlement and payment increase the time and opportunity costs. Bond ETFs can be traded on an exchange like stocks, and shares of ETFs purchased on T day can be sold on T+1, and on T+2 Funds are available, which greatly improves the efficiency of transactions.