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Bond ETFs (UCITS): why and how
Althea Spinozzi
Head of Fixed Income Strategy
Résumé: As interest rates peak, investors are offered the opportunity to diversify risk in their portfolio by adding bond exposure. However, gaining exposure to specific bonds might be challenging. Bonds ETFs provide an easy way to diversify within this space while maximizing liquidity and transparency.
As interest rates peak, investors are offered the opportunity to diversify risk in their portfolio by adding bond exposure.
However, trading cash bonds may be difficult for many investors as they trade over-the-counter (OTC), hence lacking the market transparency that stocks have. In some instances, especially in the high-yield corporate bond space, liquidity is extremely poor, and broker markups can be substantial.
In contrast, Bond ETFs offer diversity, liquidity, and price transparency, providing investors an effective tool to gain exposure to this market. Below, we look at the pros and cons of buying a bond ETF and highlight some instruments available in the Saxo Platform.
Bond ETFs Pros
- Bond ETFs offer diversification. Through an ETFs an investor can own multiple bonds in a index, diversifying risk.
- Bond ETFS are liquid and price-transparent. That’s even true for the least liquid fixed income instruments such as high-yield corporate bonds. ETFs prices are published on the exchanged and updated intraday.
- Bond ETFs do not mature. While a bond has a specific maturity, a bond ETF needs to maintain a constant maturity by buying and selling securities actively. Therefore, it is easier for bond investors to gain exposure to a specific part of the yield curve without building a bond ladder from scratch.
- Bond ETFs pay a regular income. The coupon collected by the underlying securities is distributed among ETF holders.
Bond ETFS Cons
- There is no fixed maturity, therefore investors bear interest rate risk. When buying a cash bond, the yield can be locked until maturity. At maturity, an investor will receive the notional back. Because a bond ETF never matures, one is not guaranteed to get money back. Hence, investors bear entirely interest rate risk. Yet, bonds’ carry might serve as a buffer against such risk.
What’s the bond market outlook?
Inflation still poses a risk for investors, but the moment for increasing one’s portfolio duration may be coming at the end of the year when central banks might be forced to ease the economy. Until the case for central banks to turn dovish doesn’t materialize, we favor short-term, high-quality fixed-income securities. Please refer to Saxo’s quarterly bond outlook for details.
US Treasuries: which bond ETFs (UCITS) are available to trade the US yield curve?
In EUR:
- iShares USD Treasury Bond 0-1yr ETF (IBCC:xetr). US Treasury bonds with maturities of one year or less.
- iShares USD Treasury Bond 1-3 Year ETF (IBTS:xmil). US Treasury bonds with maturities of one to three years.
- iShares USD Treasury Bond 7-10 Year ETF (IBTM:xmil). US Treasury bonds with maturities of seven to ten years.
- iShares USD Treasury Bond 20+ Year ETF (IS04:xetr). US Treasury bonds with maturities of more than twenty years.
In GBP:
- iShares USD Treasury Bond 0-1yr ETF (IBTU:xlon). US Treasury bonds with maturities of one year or less.
- iShares USD Treasury Bond 1-3 Year ETF (IBTS:xlon). US Treasury bonds with maturities of one to three years.
- iShares USD Treasury Bond 7-10 Year ETF (IBTM:xlon). US Treasury bonds with maturities of seven to ten years.
- iShares USD Treasury Bond 20+ Year ETF (IDTG:xlon). US Treasury bonds with maturities of more than twenty years.
In CHF:
- iShares USD Treasury Bond 1-3 Year ETF (IBTC:xswx). US Treasury bonds with maturities of one to three years.
- iShares USD Treasury Bond 7-10 Year ETF (IDTC:xswx). US Treasury bonds with maturities of seven to ten years.
- iShares USD Treasury Bond 20+ Year ETF (DTLC:xswx). US Treasury bonds with maturities of more than twenty years.
Corporate bonds: which bonds ETFs (UCITS) can I consider?
In EUR:
Investment grade corporate bond ETFs:
- iShares Core EUR Corporate Bond ETF (IEAC:xams). The ETF seeks to track the performance of the Bloomberg Euro Corporate Bond Index.
- Bloomberg US Liquid Corporates UCITS ETF (CBUSE:xmil). It seeks to track the investment results of the Bloomberg US Liquid Corporates (Total Return).
- Amundi EUR Corporate Bond 1-5Y (EBBB:xpar). It tracks the performance of the Bloomberg MSCI Euro Corporate 1-5 Year ESG Sustainability SRI through a direct replication methodology.
- PIMCO US Low Duration Corporate Bond ETF (LDCU:xmil). The aim of the fund is to maximize total return, consistent with prudent investment management. The fund is actively managed and invests primarily in US Dollar denominated investment grade corporate Fixed Income Instruments.
- iShares € High Yield Corp Bond ESG ETF (EHYA:xmil). The Fund aims to track the Bloomberg MSCI Euro Corporate High Yield Sustainable BB+ SRI Bond Index.
- iShares EUR High Yield Corp Bond ETF (IHYG:xmil). The Fund aims to track the performance of the Markit iBoxx EUR Liquid High Yield Index.
- iShares Global High Yield Corp Bond ETF (HYLD:xmil). The Fund aims to track the performance of the Markit iBoxx Global Developed Markets Liquid High Yield Capped.
High yield bond ETFs:
In GBP:
Investment grade corporate bond ETFs:
- iShares Core EUR Corporate Bond ETF (IEAC:xlon). The ETF seeks to track the performance of the Bloomberg Euro Corporate Bond Index.
- iShares Core £ Corp Bond UCITS ETF (SLXX:xlon). The Fund aims to track the performance of the Markit iBoxx GBP Liquid Corporates Large Cap. The index offers exposure to the most liquid, Sterling denominated, investment grade corporate bonds.
- Vanguard USD Corporate Bond UCITS ETF (VCPA:xlon). The Fund seeks to track the performance of the Bloomberg Global Aggregate Corporate - United States Dollar Index, The Fund invests in a representative sample of bonds included in the Index in order to closely match the Index's capital and income return.
- iShares GBP Corp Bond ex-Financials UCITS ETF (ISXF:xlon). The Fund aims to track the performance of the Markit iBoxx £ Non-Financials Index..
- iShares EUR High Yield Corp Bond ETF (IHYG:xlon). The Fund aims to track the performance of the Markit iBoxx EUR Liquid High Yield Index.
- iShares Global High Yield Corp Bond ETF (HYLD:xlon). The Fund aims to track the performance of the Markit iBoxx Global Developed Markets Liquid High Yield Capped.
- iShares USD High Yield Corp Bond UCITS ETF (IHYU:xlon). The Fund aims to track the performance of the Markit iBoxx USD Liquid High Yield Capped Index.
High yield bond ETFs:
In CHF:
Investment grade corporate bond ETFs:
- iShares Core EUR Corporate Bond ETF (IEAC:xswx). The ETF seeks to track the performance of the Bloomberg Euro Corporate Bond Index.
- Bloomberg US Liquid Corporates ETF (CBUSE:xswx). It seeks to track the investment results of the Bloomberg US Liquid Corporates (Total Return).
- Vanguard USD Corporate Bond ETF (VCPA:xswx). The Fund seeks to track the performance of the Bloomberg Global Aggregate Corporate - United States Dollar Index, The Fund invests in a representative sample of bonds included in the Index in order to closely match the Index's capital and income return.
- iShares EUR High Yield Corp Bond ETF (IHYG:xswx). The Fund aims to track the performance of the Markit iBoxx EUR Liquid High Yield Index.
- iShares Global High Yield Corp Bond ETF (HYLD:xswx). The Fund aims to track the performance of the Markit iBoxx Global Developed Markets Liquid High Yield Capped.
- iShares USD High Yield Corp Bond UCITS ETF (IHYU:xswx). The Fund aims to track the performance of the Markit iBoxx USD Liquid High Yield Capped Index.
High yield bond ETFs:
Where can I find more bond ETFs in the Saxo platform?
It’s easy! Click on “TRADING” -> “SCREENER” -> screen for “ETFs” and under “CATEGORIES” select the fixed income funds you would like to visualize
For inspiration, you can also refer to the UCITS ETFs lists below:
EUR:
GBP:
CHF: