Both ISHG and BWZ hold sovereign debt with maturities of one to three years. But while ISHG only focuses on debt of developed markets outside the U.S., BWZ holds a more expansive portfolio that includes some emerging market debt as well.
International sovereign debt hasn’t done poorly this year, and in fact, has largely rallied along with Treasuries. Rather, it’s the two ETFs’ exposure to foreign currencies that has hurt returns, as the U.S. dollar climbed to a two-year high in 2019.
Ultra-Short Duration = Low Returns
Aside from ISHG and BWZ, all the other ETFs on the worst-performers list have positive year to date returns. That includes a host of short duration and floating rate bond ETFs, which have little in the way of interest rate risk, but also have low yields.
Short-term muni bond ETFs, in particular, like the Invesco VRDO Tax-Free Weekly ETF (PVI), the First Trust Ultra Short Duration Municipal ETF (FUMB) and the iShares iBonds Sep 2019 Term Muni Bond ETF (IBMH), are prominent on the worst-performers list.
An ultra-short maturity Treasury bill ETF, which is defined as holding Treasuries with less than one year to maturity, also finds itself on the list: the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL).
Other Int’l Underperformers
Rounding out the worst performers list is a handful of international bonds ETFs. We already discussed ISHG and BWZ, but unlike them, the following three funds are still up year to date, just not by much.
The iShares J.P. Morgan EM Local Currency Bond ETF (LEMB), the KraneShares E Fund China Commercial Paper ETF (KCNY) and the SPDR Bloomberg Barclays International Corporate Bond ETF (IBND) returned a little more than 0.5% so far this year, with exposure to foreign currencies weighing down gains.
LEMB focuses on local currency emerging market debt, KCNY tracks renminbi-denominated short-term corporate debt in China, and IBND provides broad exposure to the global investment grade bond market outside of the U.S.