Tracking Bond ETFs

Fixed Income has been a challenge for some time for portfolio managers.  Back in 2003, the Federal Reserve pushed short-term interest rates to 1%.  Then the 2008 housing debacle pushed the Fed into crisis mode, whereby they responded by pushing short rates close to 0% and influencing the overall yield curve via their ongoing quantitative easing.

Asset allocation models, in turn, typically suggest a healthy portion towards bonds for yield and portfolio stability.  Portfolio managers have, thus, had to scramble in this environment not unlike RG III chased by Dallas Cowboys.  Seeking yield, but eying at the same time duration, has not been easy.  Not surprisingly, one of the questions I get frequently is how do I invest bond assets and what funds do I follow.

My approach is to formally write down asset prices in an Excel spreadsheet on an ad-hoc basis, i.e., when I see rates start to move or when I'm constructing a portfolio or even when I'm bored.  The table below shows the funds I follow and their prices etc., today.  As you can see, there is no particular order and there is a variety of funds.  Funds were added whenever I became interested in them.

I track price as well as indicated value.  Since these are ETFs, they trade like stock.  As such, the price of the underlying portfolio is priced at regular intervals; but the price in the market is based on supply and demand.  If the price exceeds indicated value by an appreciable amount, it definitely gives me pause.

I also record the SEC yield.  This weighted yield is based on yield to maturity and is net of management expenses.  As such, it is useful for comparing funds.

When I'm constructing a portfolio or when I hear an analyst say, for example, that high yield bonds are expensive, I can go to the spreadsheet and check how the high yield funds I track have done.  Similarly, if I read that international bonds offer value, I can pull out the international bond funds and see how they have done.

I believe that tracking funds is most easily accomplished using Morningstar.  Putting in the ticker symbol gives you the required data plus the additional research you'll need, such as the all-important duration, holdings, and fund expenses.

Disclosure:  I and my clients hold most of the funds listed.  The purpose of this post is educational. Investors should do their own research or consult a professional before making investment decisions.

ETF	Pr. ($s)(5/20) 11:30 am	I.V. ($s)	SEC Yld. %	Descrip.
HYG	95.63	95.41	4.40	High Yld. Corp.
AGG	110.30	110.39	2.00	Total U.S. Bond
SCHZ	52.08	52.07	1.31	U.S. Aggr. Bond
MBB	107.22	107.55	2.66	MBS Bond
CSJ	105.56	105.46	0.62	1-3 Year Credit
IEI	123.30	123.30	0.53	3-7 Year Treas.
IEF	107.00	107.02	1.35	7-10 Year Treas.
EMB	119.68	120.25	3.59	USD Emerging Mkt
BKLN	25.22	25.17	3.86	Senior Loan Port.
IHY	27.20	26.98	4.93	Int’l. High Yld.
PFF	40.94	40.90	*5.73	Preferred Stk.
BSJF	27.09	26.99	*5.01	Bullet Shrs 2015 Corp.
LQD	120.12	120.06	2.76	Invest Grade Corp
BAB	30.40	30.40	3.97	Build Amer Bonds
BOND	109.74	109.78	2.34	PIMCO Total Ret.
HYS	106.21	106.06	2.90	PIMCO 0-5 Hi Yld Corp
FLOT	50.68	50.54	0.37	Floating Rate Notes