“Keeping ETF returns in line with the indexes has proven to be tough in the murky bond market. … Index drift is a growing problem. …Many trade at a premium to their Net Asset Value (NAV).”
I don’t recommend bond ETFs because bonds are the
“fixed income” portion of the portfolio, if you can’t count on bond ETFs to do their job and stay in role, you are better off with a bond ladder, index or low cost passively managed diversified bond mutual fund. This may change as the bond market gets more efficient but that will not happen over night. IMHO
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Hi Keith,
As usual the answer is “it depends”. However, make no mistake about it, bond ETFs are different animals than equity ETFs. Also if the use of the bonds is capital preservation then I tend to like actual bonds, held to maturity and (low expense, no load, short and intermediate) actively managed bond funds better than ETF bond funds. There are no actively managed muni ETFs and the current muni ETF funds have beaten the actively managed muni bond funds more often than not for 3, 5 and 10 year time frames so for the simplicity, diversity, performance and low expense I see a role in some portfolios…muni income counts in Modifed AGI so retirees can end up having more of their social security taxed if these generate too much income. So… it depends on the role the investment is playing in context of the client’s goals and sitution – as usual.