Comparing Total Return Bond ETFs

September 06, 2016

This has been a big year for U.S. fixed-income ETFs, which have led asset-class net creations with inflows of more than $60 billion year-to-date. In this segment, no fund has been more popular this year, or is bigger than the iShares Core U.S. Aggregate Bond ETF (AGG).

AGG, which has a massive $41.3 billion in total assets, tracks an index of U.S. investment-grade bonds in a far-reaching portfolio that includes more than 5,800 securities.

So far this year, AGG has attracted $9.24 billion in net inflows—the second-most-popular ETF of 2016, behind only the SPDR Gold Trust (GLD), according to FactSet data.

Still, just as AGG is popular, so is the attempt to outperform it. There’s a growing number of funds that set out to do just that, and they, too, are growing in size, for the most part.

Consider five ETFs that strive to beat the AGG:

There are quick differences we can point out between them: Four of these funds seek outperformance through active management—only AGGY is index-based.

When it comes to active management, having a “star” manager goes a long way in helping an ETF find acceptance among investors. It’s no surprise, then, that TOTL is the biggest fund in this group, with $2.8 billion in assets, thanks in part to the reputation of its manager, DoubleLine’s Jeffrey Gundlach.

BOND did, too, once benefit from a strong name behind it. The fund, which was originally managed by “bond king” Bill Gross, emerged as the second-most-successful ETF launch ever—the fund gathered its first $1 billion in about three months thanks in large part to Gross’ reputation.

But Gross has left PIMCO for Janus Capital, putting the fund in the capable hands of not one, but three, managers: Scott Mather, Mark Kiesel and Mihir Worah. Since Gross’ break with PIMCO, the ETF has struggled to attract many investors, although it remains the second-largest in this group, with $2.5 billion in assets.

More Active Management

GTO is also actively managed, and it brings into this space the name of Guggenheim’s Scott Minerd and his team. But the fund is still too new to market to challenge TOTL’s and BOND’s dominance, launching back in February. It only has $21 million in assets.

And FBND has Fidelity’s brand name behind it—it has accumulated $173 million in assets in about two years. Four of these funds have seen net positive asset flows this year—BOND is the only ETF in the red, with net redemptions of $116 million year-to-date.

Asset flows don’t say much about the viability of a fund, or about its importance. But the reality is that in a year when fixed income has been the most popular asset class for ETFs, BOND has bled assets. Three of these funds are still relatively new to market, having being launched less than two years ago.

To many investors and advisors, longevity in the market—and a live track record—matter when choosing an ETF, particularly an actively managed one. In this group, BOND is the veteran, with a 2012 inception.

FBND is nearing its second anniversary this October, but the other three are relative newbies, particularly GTO, which was launched only six months ago. TOTL was launched 18 months ago.

Portfolio differences among these five ETFs abound, and explain the divergence in their performances year-to-date. Plotting the total returns of these five ETFs so far in 2016, there’s nearly 4 percentage points between the best performer and the worst: 




Find your next ETF

Reset All