These funds all set out to outperform AGG, but so far this year, three of them have accomplished that. The two largest funds in the group, TOTL and BOND, have both slightly underperformed—AGG is up 5.6% year-to-date:
Charts courtesy of StockCharts.com
As a quick look under the hood, here are some of the major differences in portfolio construction:
TOTL is the largest portfolio, with 654 holdings, and one that tilts heavily toward mortgage-backed securities—56% of the portfolio is allocated to MBS. That strong bet on mortgage-backed securities has in some ways been the trademark of Gundlach’s approach to this segment.
Treasurys here represent only 12% of the overall mix, according to State Street data. This allocation is a notable departure from the underlying benchmark for this segment, the Barclays U.S. Aggregate Bond Index, which holds Treasurys as its largest weighting at 36% and mortgage-backed securities at 27%.
TOTL is also global in scope, allocating about 8.3% to emerging market bonds. And it owns debt that’s not at the top of the quality spectrum, such as B- and C-rated bonds. The mix has a current 30-day yield of 2.75%—the second-highest among these five ETFs.
BOND, which has slightly fewer holdings than TOTL—585 securities—has a 30-day yield of 2.53%, or 20 basis points less than TOTL.
From an allocation perspective, BOND tilts toward U.S. government debt at about 51% of the portfolio. Mortgage-backed securities snag about 44% of the fund’s market value, according to PIMCO data. But like TOTL, BOND too invests in high-yield bonds and emerging market debt.
FBND is the third-largest portfolio of this group, with 465 holdings. The fund, which is shelling out a 30-day yield of 2.36%, focuses on corporate debt—about 40% of the mix—with government and mortgage-linked securities at 31% and 20%, respectively, according to Fidelity data.
Roughly 20% of FBND is tied to high-yield bonds, and the fund, too, is global in scope. U.S. debt accounts for 86% of the portfolio.
FBND is shelling out the second-lowest 30-day yield of the group—second only to AGGY—but it’s also delivering the strongest total returns year-to-date, with gains of 8.4% versus AGG’s 5.6%.
GTO is the smallest of these portfolios, with only 87 securities. Among them, U.S. Treasurys lead the allocation breakdown, with roughly a 24% weighting.
Cash and cash equivalents, as well as investment-grade corporates, are a close second, at about 15% each, according to Guggenheim data.
While the portfolio is relatively small, its reach is pretty wide from a quality perspective, including Treasurys, bank loans, munis, preferreds and high-yield corps.
As of Aug. 26, GTO had the highest 30-day yield of the group, at 2.95%.
And then there’s the index-based AGGY, which tracks the Barclays U.S. Aggregate Enhanced Yield Index. AGGY has a current 30-day yield of 2.23%—the lowest of the group—but the fund is also the second-best performer among these five ETFs, with gains of 8.2% year-to-date, as the chart above shows.
AGGY only owns investment-grade debt that’s weighted by yield.
And within investment-grade bonds, AGGY tilts toward the higher-quality debt—roughly 48% of the portfolio is AAA-rated. And while global in scope, the fund allocates 91% to U.S. bonds. But its biggest segment allocation is to corporate bonds, which represent about 50% of the mix.
Mortgage-backed securities and Treasurys follow, at 27% and 16%, respectively.
These portfolio differences matter when choosing the right ETF for you. But it’s important to remember that four of these five funds are actively managed, meaning their portfolio managers can quickly—and drastically—change their allocations depending on their views.
Contact Cinthia Murphy at [email protected].