New Bond ETFs

When I discussed how to build a Lazy Portfolio with ETF last December, I mentioned that the reason why one of the Lazy Portfolios outperformed (still negative though) the S&P 500 index last year was its relatively large position is bonds, which did quite well  in 2008 comparing to equities. Now you just got more choices in bond ETF to build a diversified portfolio. Last month, Barclays Global Investors and State Street Global Advisors introduced four new fixed-income ETFs  to investors.

iShare S&P/Citigroup 1-3 Year International Treasury Bond Fund (ISHG)

The iShare S&P/Citigroup 1-3 Year International Treasury Bond ETF tracks the S&P/Citigroup International Treasury Bond Index Ex-US 1-3 Year, which is created and managed by Citigroup Index LLC. The fund’s index provider, however, is the Standard & Poor’s. The underlying index is a market value-weighted index that is designed to measure the performance of treasury bonds issued in local currencies by developed market countries outside the U.S. with maturity from one to three years. As of December 31, 2008, the index consists of bonds issued in 19 countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland,Italy, Japan, The Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and U.K.

ISHG is a passive fund that generally invests 80% of its assets in securities of the underlying index, but it could invest up to 20% of its assets in futures, options, swap contracts or cash. The holdings of the fund and their respective ratings from Moody’s and S&P are shown in the following table.

Securities % of Fund
(Moody’s rating)
0% Fund
(S&P rating)
Aaa/AAA 47.40 38.64
Aa1/AA+ 4.76 9.41
Aa2/AA 13.04 24.22
Aa3/AA- 24.22 0.00
A1/A+ 0.00 13.04
A2/A 4.66 0.00
A3/A- 0.00 4.66

According to Morningstar, ISHG currently holds 22 securities and has an expense ratio (ER) of 0.35%. The average maturity of the fund’s holdings is 1.9 years.

iShare S&P/Citigroup International Treasury Bond (IGOV)

Unlike ISHG, the iShares S&P/Citigroup International Treasury Bond ETF mainly invest in long-term bonds with maturities up to 25 years. The fund tracks S&P/Citigroup International Treasury Bond Index Ex-US, which consists of bonds issued by the same 19 countries as those of ISHG. The fund, however, does invest a small portion in U.S. Goverment/Agency bonds, which is not the case for ISHG. The holdings and ratings of the fund are shown below.

Securities % of Fund
(Moody’s rating)
0% Fund
(S&P rating)
US Gov’t/Agency 1.24 1.24
Aaa/AAA 47.02 36.07
Aa1/AA+ 4.83 9.47
Aa2/AA 14.87 24.30
Aa3/AA- 24.30 0.00
A1/A+ 4.58 14.87
A2/A 0.00 0.00
A3/A- 0.00 4.58

IGOV has an ER of 0.35%. As of February 6, 2009, the fund holds 44 securities with an average maturity of 8.29 years.

SPDR Barclays Capital Mortgage Backed Bond ETF (MBG)

The State Street SPDR Barclays Capital Mortgage Backed Bond ETF uses a passive approach to invest investment-grade securities issued by U.S. government agencies such as Government National Mortgage Association (“GNMA”), Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”).  The fund tracks the Barclays Capital U.S. MBS Index which measures the performance of the U.S. agency mortgage pass-through segment of the U.S. investment grade bond market.

The top holdings of MBG and their respective weights are as following.

  • FNMA Single Family 30yr 5.5: 29.73%
  • FGLMC Single Family 30yr 6: 19.99%
  • FGLMC Single Family 30yr 5 : 13.77%
  • FNMA Single Family 30yr 6.5: 6.06%
  • FNMA Single Family 15yr 5: 4.97%
  • FGLMC Single Family 15yr 4.5: 4.93%
  • GNMA Single Family 30yr 6: 4.00%
  • GNMA Single Family 30yr 5.5: 3.98%
  • FGLMC Single Family 30yr 4.5: 3.61%
  • FNMA Single Family 15yr 6: 2.02%
  • GNMA Single Family 30yr 6.5: 2.02%
  • FGLMC Single Family 15yr 5.5: 2.00%
  • GNMA Single Family 30yr 5: 1.98%
  • Cash: 0.92%

MG charges 0.20% as an expense ratio. The fund has an average coupon yield of 5.52% and average maturity of 4.98 years.

SPDR Barclays Capital Short-Term International Treasury Bond (BWX)

The SPDR Barclays Capital International Treasury Bond ETF tracks the Barclays Capital Global Treasury ex-US Capped Index. The underlying index includes investment-grade government bonds issued in local currencies by countries outside the U.S., including Australia, Austria, Belgium, Canada, Denmark, France, Germany, Greece, Italy, Japan, Mexico, Netherlands, Poland, South Africa, Spain, Sweden, Taiwan, and United Kingdom. The average  remaining maturity of securities in the index is one year or more.

BWX has an ER of 0.50%. The average credit quality as of February 6, 2008 is AA2 with average maturity 8.21 years. The current yield of BWX is 3.88%.

*Stock chart from INO Free Stock Analysis

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