Choosing the best bond exchange-traded funds (ETFs) is a bit like juggling swords. The value of bonds with longer-dated maturities are pretty depressed, thanks to high inflation and rising interest rates. That makes shorter-duration bonds the best choice for today’s unusual market conditions.

No matter what the market is doing, however, investors need bonds to bolster a well-diversified investment portfolio. Fixed income provides ballast because this asset class is less volatile than stocks. As interest rates continue to rise, bond ETF investors will be rewarded with higher yields, which is what income investors want.

Our listing of the best bond ETFs concentrates on shorter-duration funds that are appropriate for the current rising interest rate environment.

Methodology

To arrive at our listing of the best bond ETFs, we began by using the Morningstar Premium ETF screener to find funds that met the following criteria:

  • Taxable bond funds and municipal bond funds.
  • Funds with a gold, silver or bronze Morningstar rating.
  • A Morningstar rating of three to five stars.
  • Expense ratio of less than 0.65%.

The initial screen yielded 101 bond funds, which we sorted based on each category above. The funds we selected for further study hewed toward intermediate to short maturities. We avoided long-term bond funds, which are likely to suffer during forthcoming rounds of interest rate hikes.

The remaining contenders were individually screened for their ability to maintain reasonable average five-year returns in the face of rising interest rates. We also looked at yields, and estimated the likelihood of category-beating performance in the current economic environment. From that list we culled a diversified list of seven bond ETFs suitable for a range of fixed-income investors.

You might also be interested in:

LEAVE A REPLY

Please enter your comment!
Please enter your name here