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ETF Talk: This Bond Fund Offers Diversity and Yield

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12/21/2011

Safe-haven investments are hard to come by in this market. All markets seem to go north or south together. With risks rising and interest rates microscopically low, it is hard to find a relatively safe play that also can provide some consistent income. While many high-income stocks can provide you with dividends, the market’s occasional retreats can leave you with tattered remnants of your original investment.
 
Fortunately, I know of an exchange-traded fund (ETF) that may interest you. The iShares Barclays Government/Credit Bond ETF (GBF) provides investors with the ability to be slightly more diversified than a typical bond fund and with a way to collect larger yields, thanks to its positions in corporate debt, as opposed solely to the thin yields of government bonds. GBF seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the U.S. government and investment grade U.S corporate securities of the U.S. bond market, as defined by the Barclays Capital U.S. Government/Credit Bond Index.
 
This mixed bond ETF allows for a nice monthly dividend, which has paid out an average of $0.28 monthly in 2011. Year-to-date, GBF is up more than 7%, and the fund is up a healthy 8.41% during the past three years combined. So, while GBF did not have double-digit percentage returns like some investments in the stock market, it has been a consistent winner with little downside. Clearly, the broader markets can’t claim the same kind of performance.
 
 
Government bond funds, on the other hand, usually are fairly safe, especially here in the United States. But such investments tend to yield miniscule returns. In fact, Treasury Inflation Protected Securities (TIPS) are yielding a negative rate. Just last week, the U.S. government raised $12 billion, selling 5-year TIPS at a record low -0.877% yield. This means you pay the government to own the debt. Clearly, these are some historically challenging times for investors, and that makes finding funds like GBF even more important.
 
If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my ETF Trader service. As always, I am happy to answer your questions about ETFs, so do not hesitate to email me by clicking here. You may see your question answered in a future ETF Talk.
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