5 Best Performing Fixed Income ETFs

July 10, 2014

In the first half of the year, it’s been all about duration.

The first half of 2014 has been an interesting period for the fixed-income market. The widely forecast “bond market Armageddon” didn’t happen. Instead, a lackluster U.S. economic recovery, a rather tame inflation outlook, a very accommodative European Central Bank and geopolitical unrests helped drive down Treasury yields and lift prices.

The benchmark U.S. 10-year yield retreated to about 0.50 percent below where it started the year. The drop in yields boosted the performance of long-duration bond ETFs the most.

Here are the top five best-performing fixed-income ETFs of the first half of 2014.

5. iShares 20+ Year Treasury Bond ETF (TLT | A-80)
Total return: +12.85 percent; Effective duration: 18.11 years

TLT_perf

TLT invests in Treasury bonds with at least 20 years remaining in maturity. Since Treasurys are perceived to be risk free, it is a pure duration play.

TLT benefited both from ongoing geopolitical unrest centered on Ukraine and Iraq, as well as from muted inflation forecasts. Believing inflation would not be a significant source of head winds, investors rushed to safe-haven Treasury funds like TLT to lock in yield when Ukraine descended into seemingly unending chaos.

 

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