BEST NEW U.S. FIXED-INCOME ETF
WINNER: iShares ESG U.S. Aggregate Bond ETF (EAGG)
We hear about environmental, social and governance (ESG) all the time when it comes to stocks. Principles-based investment strategies have been quietly growing in the equity space. But when it comes to fixed income, the same can’t be said. There’s been little mention of using ESG criteria for deciding which bonds to hold in a portfolio.
The iShares ESG U.S. Aggregate Bond ETF (EAGG), winner of the Best New U.S. Fixed-Income ETF award, aims to change that. In its 4 1/2 months on the market, it’s picked up $56 million in assets, no doubt thanks to its association with the $58 billion iShares Core U.S. Aggregate Bond ETF (AGG), the largest fixed-income ETF on the market.
EAGG takes the same Bloomberg Barclays U.S Aggregate Bond Index that’s tracked by AGG and puts it through an ESG filter. Aspects like Treasuries and mortgage-backed securities remain big parts of the portfolio, as they’re seen as ESG-neutral. But bonds of corporations and other institutions are weighted based on their ESG score.
Some bonds of entities involved in tobacco and weapons are excluded. But the ETF optimizes its holdings to maintain marketlike exposure to the investment-grade bond space, giving investors the ability to support ESG causes in their fixed-income portfolio without deviating too much from their market.
BEST NEW INTERNATIONAL/GLOBAL FIXED-INCOME ETF
WINNER: Vanguard Total World Bond ETF (BNDW)
When it comes to bonds, Vanguard has a history of shaking things up. The firm launched the first bond index fund in 1986, entering an asset class that had been the sole purview of active managers. More than three decades later, actively managed bond funds still dominate the landscape, but fixed-income index funds—thanks in large part to ETFs—are making great strides.
Helping their cause is a new offering from Vanguard, the Vanguard Total World Bond ETF (BNDW), winner of the Best New International/Global Fixed-Income ETF award. The $100 million BNDW may not be as revolutionary as the Vanguard Total Bond Market Index Fund was 33 years ago, but it still deserves praise and recognition for providing investors with exceptionally low-cost exposure to the global investment-grade bond market.
BNDW gets its exposure by holding two other Vanguard ETFs, the Vanguard Total Bond Market ETF (BND), a U.S. investment-grade bond ETF, and the Vanguard Total International Bond ETF (BNDX), an ex-U.S. investment-grade bond ETF.
It doesn’t charge anything extra on top of the fees for those two funds, meaning investors get to hold the equivalent of nearly 13,000 bonds across the globe for a mere 0.09% per year.