Bond ETFs: Your secure return in stormy times!

Bond ETFs: Your secure return in stormy times!

The bond market is under pressure while many countries are ramping up debt. The increasing backlog of government bonds is leading to higher yield demands and shifting investors' perspectives. They increasingly no longer view government bonds as risk-free investments. Rising yields can cause existing bondholders to suffer price losses, particularly long-term government bonds. This shows that the government bond market is facing new challenges, such as NZZ reported.

In this context, term ETFs are becoming increasingly important. They allow investors to purchase a diversified portfolio of bonds with a fixed expiration date. These financial products offer a certain level of security as negative surprises, apart from insolvency, are unlikely. In contrast to normal ETFs or investment funds, which do not have a guaranteed return, term ETFs allow you to know the return over the entire term right from the start. For example, iShares offers a variety of bond products and is considered the market leader in ETFs.

Diversity of providers and products

Different providers use different terms for term ETFs. Amundi calls them “Fixed Maturity”, Invesco calls them “Bullet Shares”, iShares calls them “iBonds” and Xtrackers calls them “Target Maturity”. The fees for these ETFs are around 0.1 percent, making them an attractive option for retail investors. However, it should be noted that there are currency risks as many of the products are denominated in dollars or euros. In addition, interest payments are subject to income tax in Switzerland.

For investors seeking less risky alternatives to government bonds, corporate bonds might be worth considering. An example of this is the iShares iBonds Dec 2034 Term € Corp UCITS ETF, which includes 111 bonds with a return of 3.6 percent per year. The Invesco Bullet Shares 2030 USD Corporate Bond UCITS ETF with a higher return of 4.77 percent is interesting for USD-denominated investors.

Top bond ETFs with high returns

An overview of the bond ETFs with the highest distribution yields shows that there are attractive investment opportunities in different regions. In the Asia-Pacific sector, the Tabula Haitong Asia ex-Japan High Yield Corporate USD Bond ESG UCITS ETF offers a return of 8.84 percent. For emerging markets, the UBS BBG USD EM Sovereign UCITS ETF is particularly noteworthy with a return of 8.56 percent.

The diversification opportunities created by such bond ETFs offer retail investors a valuable opportunity to optimize their portfolio. The information on new ETF listings is available on the SIX website and the providers' websites themselves could often be made more user-friendly to make it easier for investors to access this valuable information, such as justETF notes.