U.S. Bond ETFs: Top 10 to Watch in 2023

What is the largest bond ETF in the U.S.?

As of May 2023, the largest U.S. bond ETF is the Vanguard U.S. Total Bond Market ETF ($BND), with a net asset value above US$92.6b. It invests in a diversified portfolio of investment-grade bonds, including U.S. government, corporate, and international bonds. It aims to track the performance of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index, which is a broad measure of the U.S. investment-grade bond market. The ETF has a low expense ratio and provides investors with broad exposure to the bond market.

Top 10 U.S. bond ETFs

Data as of 2 May 2023

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Watch these bond ETFs from the U.S. stock market

1. iShares Core U.S. Aggregate Bond ETF ($AGG)

Assets Under Management (AUM): US$89.16b

Stock price (as of 02/05/23): US$99.65

Stake platform bought / sold (1 Jan 2023 - 2 May 2023): 61% / 39%

The iShares Core U.S. Aggregate Bond ETF invests in a diversified portfolio of investment-grade U.S. bonds, including treasuries, mortgage-backed securities, and corporate bonds. It seeks to track the performance of the Bloomberg Barclays U.S. Aggregate Bond Index, which is a widely recognised benchmark for the U.S. bond market. The ETF has a low expense ratio and provides investors with broad exposure to the U.S. bond market.

2. Vanguard Total International Bond ETF ($BNDX)

Assets Under Management (AUM): US$49.12b

Stock price (as of 02/05/23): US$49.07

Stake platform bought / sold (1 Jan 2023 - 2 May 2023): 68% / 32%

The Vanguard Total International Bond ETF invests in a diversified portfolio of investment-grade non-U.S. bonds, including government and corporate bonds. It aims to track the performance of the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index, which is a measure of the global investment-grade bond market, excluding the United States. The ETF provides investors with exposure to non-U.S. bond markets and helps diversify their portfolio.

3. Vanguard Intermedia-Term Corporate Bond ETF ($VCIT)

Assets Under Management (AUM): US$40.44b

Stock price (as of 02/05/23): US$80.11

Stake platform bought / sold (1 Jan 2023 - 2 May 2023): Not available

The Vanguard Intermediate-Term Corporate Bond ETF invests in investment-grade corporate bonds with maturities between 5 and 10 years. It aims to track the performance of the Bloomberg Barclays U.S. 5-10 Year Corporate Bond Index, which measures the performance of the U.S. investment-grade corporate bond market. The ETF provides investors with exposure to intermediate-term corporate bonds and has a relatively low expense ratio of 0.04%.

4. Vanguard Short-Term Bond ETF ($BSV)

Assets Under Management (AUM): US$37.56b

Stock price (as of 02/05/23): US$76.59

Stake platform bought / sold (1 Jan 2023 - 2 May 2023): Not available

The Vanguard Short-Term Bond ETF invests in a diversified portfolio of investment-grade U.S. bonds with maturities between 1 and 5 years. It aims to track the performance of the Bloomberg Barclays U.S. 1-5 Year Government/Credit Float Adjusted Index, which is a measure of the U.S. investment-grade bond market with short-term maturities. The ETF provides investors with exposure to short-term U.S. bonds and has a low expense ratio (0.04%).

5. Vanguard Short-Term Corporate Bond ETF ($VCSH)

Assets Under Management (AUM): US$36.70b

Stock price (as of 02/05/23): US$76.24

Stake platform bought / sold (1 Jan 2023 - 2 May 2023): Not available

The Vanguard Short-Term Corporate Bond ETF invests in investment-grade corporate bonds with maturities between 1 and 5 years. It aims to track the performance of the Bloomberg Barclays U.S. 1-5 Year Corporate Bond Index, which measures the performance of the U.S. investment-grade corporate bond market with short-term maturities. The ETF provides investors with exposure to short-term corporate bonds with a relatively low expense ratio of 0.04%.

6. iShares 20+ Year Treasury Bond ETF ($TLT)

Assets Under Management (AUM): US$36.20b

Stock price (as of 02/05/23): US$105.70

Stake platform bought / sold (1 Jan 2023 - 2 May 2023): 70% / 30%

The iShares 20+ Year Treasury Bond ETF invests in U.S. Treasury bonds with maturities of 20 years or more. It seeks to track the performance of the ICE U.S. Treasury 20+ Year Bond Index. The ETF provides investors with exposure to long-term U.S. Treasury bonds and is more sensitive to changes in interest rates compared to shorter-term bond ETFs.

7. iShares iBoxx $ Investment Grade Corporate Bond ETF ($LQD)

Assets Under Management (AUM): US$34.79b

Stock price (as of 02/05/23): US$109.09

Stake platform bought / sold (1 Jan 2023 - 2 May 2023): 80% / 20%

The iShares iBoxx $ Investment Grade Corporate Bond ETF invests in investment-grade corporate bonds with maturities of 1 year or more. It seeks to track the performance of the Markit iBoxx USD Liquid Investment Grade Index, which measures the performance of the U.S. investment-grade corporate bond market. The ETF provides investors with exposure to investment-grade corporate bonds and has a relatively low expense ratio (0.14%).

8. iShares National Muni Bond ETF ($MUB)

Assets Under Management (AUM): US$32.38b

Stock price (as of 02/05/23): US$107.14

Stake platform bought / sold (1 Jan 2023 - 2 May 2023): Not available

The iShares National Muni Bond ETF invests in a diversified portfolio of investment-grade municipal bonds issued by state and local governments in the United States. It seeks to track the performance of the S&P National AMT-Free Municipal Bond Index, which measures the performance of the U.S. investment-grade municipal bond market. The ETF provides investors with exposure to tax-exempt municipal bonds.

9. SPDR Bloomberg Barclays 1-3 Month T-Bill ETF ($BIL)

Assets Under Management (AUM): US$29.48b

Stock price (as of 02/05/23): US$91.41

Stake platform bought / sold (1 Jan 2023 - 2 May 2023): 51% / 49%

The SPDR Bloomberg Barclays 1-3 Month T-Bill ETF invests in U.S. Treasury bills with maturities of 1 to 3 months. It seeks to track the performance of the Bloomberg Barclays U.S. Treasury Bills 1-3 Month Index, which is a measure of the U.S. Treasury market with very short-term maturities. The ETF provides investors with exposure to short-term U.S. Treasuries and can be a good option for investors who want a safe and liquid investment with low risk and volatility.

10. iShares 7-10 Year Treasury Bond ETF ($IEF)

Assets Under Management (AUM): US$28.47b

Stock price (as of 02/05/23): US$99.60

Stake platform bought / sold (1 Jan 2023 - 2 May 2023): 60% / 40%

The iShares 7-10 Year Treasury Bond ETF invests in a portfolio of U.S. Treasury bonds with maturities between 7 and 10 years. It seeks to track the performance of the ICE U.S. Treasury 7-10 Year Bond Index, which is a measure of the performance of the U.S. Treasury market with intermediate-term maturities. One of the unique features of IEF is its focus on the intermediate-term segment of the Treasury market.

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Which U.S. bond ETF has the best 5-year return?

The iShares Convertible Bond ETF ($ICVT) was the best performing U.S. bond ETF over the last 5 years (+9.03%) due to its unique investment strategy. ICVT invests in a diversified portfolio of convertible bonds issued by U.S. and non-U.S. companies. Convertible bonds are a hybrid security that combine features of both bonds and stocks. They offer investors the opportunity to participate in the potential upside of the issuing company's stock, while also providing downside protection in the form of a fixed income stream.

This unique combination of features can make convertible bonds particularly attractive in a volatile market environment, as they offer a degree of protection against market downturns while also providing potential for growth. Additionally, the low interest rate environment over the last several years has led to increased demand for high yield bond ETFs than government bonds. Overall, ICVT's investment strategy has proven successful over the last 5 years, making it an attractive option for investors seeking exposure to convertible bonds.

U.S. Bond ETFs FAQs

Are bond ETFs a good investment?

Bond ETFs can be a good investment for certain types of investors, depending on their investment objectives and risk tolerance. Here are some factors to consider:

• Diversification: Bond ETFs can offer broad diversification across a range of fixed-income securities, including government, corporate, and municipal bonds. This can help reduce the risk of investing in individual bonds and improve overall portfolio diversification.
• Liquidity: Bond ETFs trade on major exchanges like stocks, making them more liquid than individual bonds. This means investors can buy and sell them easily throughout the trading day.
• Low cost: Bond ETFs generally have lower expense ratios compared to actively managed bond funds, which can help investors save on fees.
• Interest rate risk: Bond prices tend to fall when interest rates rise, which can affect bond ETFs. However, some bond ETFs are designed to minimise interest rate risk by investing in short-term bonds or adjusting their holdings in response to changes in interest rates.
• Credit risk: Bond ETFs may also be subject to credit risk, which is the risk that the issuer may default on its debt obligations. However, most bond ETFs invest in investment-grade bonds, which have a lower risk of default.

Overall, bond ETFs can be a good investment for investors seeking income, diversification, and a lower-risk investment option compared to stocks.

Is it better to buy bonds or bond ETFs?

The decision to buy individual bonds or bond ETFs depends on the investor's specific investment goals, risk tolerance, and investment horizon. Compare some of the difference between bonds and bond ETFs:

• Diversification: Bond ETFs offer diversification benefits by holding a basket of bonds. Investors who want to achieve diversification but do not have enough capital to build a diversified bond portfolio may find bond ETFs more accessible.
• Accessibility: Bond ETFs trade like stocks and can be bought and sold during regular trading hours on exchanges, making them more accessible than individual bonds, which often require a minimum investment.
• Cost: Bond ETFs typically have lower fees compared to actively managed bond funds, but investors may have to pay a commission to buy and sell them. In contrast, individual bonds may have lower transaction costs but can require more effort to research and purchase.
• Customisation: Individual bonds offer more flexibility and customisation compared to bond ETFs. Investors can choose the maturity, credit quality, and other characteristics of individual bonds to meet their specific needs. Bond ETFs have pre-determined portfolios that may not align with an investor's specific investment objectives.
• Risk: Bond ETFs may be subject to interest rate and credit risk, while individual bonds may be subject to default risk. Investors should carefully consider the risks associated with both types of investments before making a decision.

In summary, both individual bonds and bond ETFs have their advantages and disadvantages. It is up to investors to decide which are best suited to their investment strategy.

What is the best performing U.S. treasury bond ETF?

The Invesco Treasury Collateral ETF ($CLTL) was the best performing U.S. Treasury bond ETF over the last 5 years, despite only returning +1.46% to its shareholders during the period. CLTL invests in a portfolio of short-term U.S. Treasury securities with maturities of 13 months or less. This means that the fund is designed to track the performance of the ICE U.S. Treasury Short Bond Index, which is a measure of the performance of the U.S. Treasury market with short-term maturities.

CLTL's focus on the short-term segment of the Treasury market means that it is less sensitive to changes in interest rates than longer-term Treasury ETFs, which is why despite the recent rise in interest rates, the fund was able to achieve better returns than its peers. This can make CLTL an attractive option for investors seeking a low-risk, income-generating investment with minimal interest rate risk. Overall, CLTL's investment strategy has proven successful over the last 5 years, making it an attractive option for investors seeking exposure to short-term U.S. Treasury securities.

This does not constitute financial product advice nor a recommendation to invest in the securities listed. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking appropriate financial or taxation advice before investing.