The growth of ETFs has made the task of navigating the investment landscape more challenging. This practical framework can help investors select the fixed income ETFs that best meet their needs, whether they’re seeking risk, yield or diversification.
Does the ETF you’re considering align with your investment objectives?
What is your risk tolerance?
What is your investment horizon?
Is your portfolio diversified?
Does the index align with your portfolio?
How does the ETF replicate the underlying index? Physically, optimisation/sample-based or synthetically?
How long has the index existed?
What is the index weighting methodology (e.g. market-capitalisation)?
Does the index report holdings on a daily basis?
How often is the index rebalanced?
Do the index’s holdings overlap significantly with existing strategies in your portfolio?
What are the index risks?
Does the firm have a solid reputation in the ETF marketplace and the appropriate resources and skills in fixed income investing?
How experienced is the ETF issuer in developing and managing fixed income ETFs?
What are the issuer’s total assets under management (AUM) in fixed income and total ETF AUM?
How broad is the issuer’s fixed income range?
Does the issuer enjoy good relationships with index providers?
Does the issuer provide valuable trading support?
Does the issuer have a strong local and global presence?
How does the fund provider communicate with investors?
Does the ETF minimise expenses?
What is the fund’s total expense ratio?
Does the investment process take into account the impact of rebalancing costs on the performance of the ETF?
What is the average bid-ask spread?
What is the tracking error of the fund?
Can you trade when you want to?
What is the best route to trade a fixed income ETF?
How does the ETF maintain liquidity?
Has liquidity been impacted due to market volatility?
Does trading activity cause dramatic price swings?
* Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs.
Diversification does not ensure a profit or guarantee against loss.
ETFs trade like stocks, are subject to investment risk and will fluctuate in market value. The investment return and principal value of an investment will fluctuate in value, so that when shares are sold or redeemed, they may be worth more or less than when they were purchased. Although shares may be bought or sold on an exchange through any brokerage account, shares are not individually redeemable from the fund. Investors may acquire shares and tender them for redemption through the fund in large aggregations known as “creation units.” Please see the fund’s prospectus for more details.
Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates raise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.
Investing in high yield fixed income securities, otherwise known as “junk bonds”, is considered speculative and involves greater risk of loss of principal and interest than investing in investment grade fixed income securities. These Lower-quality debt securities involve greater risk of default or price changes due to potential changes in the credit quality of the issuer.
International Government bonds and corporate bonds generally have more moderate short-term price fluctuations than stocks, but provide lower potential long-term returns.