Best Bond ETFs

Mencionado: PIMCO Enhanced Short Maturity Active  ETF (MINT) , Vanguard Short-Term Treasury ETF (VGSH) , Vanguard Short-Term Corporate Bond ETF (VCSH) , Vanguard Long-Term Corporate Bd ETF (VCLT) , Schwab US TIPS  ETF (SCHP) ,  Vanguard Short-Term Infl-Prot Secs  ETF (VTIP) , Fidelity®  Total Bond ETF (FBND) ,  iShares Core Total USD Bond Market ETF™ (  IUSB  )  ,    PIMCO Enhanced Short Mtrty Actv ESG ETF (EMNT),  iShares Core US Aggregate Bond ETF (AGG)

Do investors need bonds in their portfolios?

The question is, of course, personal. Investors with goals in the three- to 10-year range—for example, buying a new home, retiring in the next decade, or sending their youngest child who has just started high school to college—will most likely do so. So are those who are retired. Bonds are also favored by investors who may be uncomfortable with 100% of the stock, no matter their time horizon.

Exchange-traded funds focused on fixed income securities can be a great way for investors to gain exposure to bonds. Here are some reasons why:

  • Many ETFs are transparent (they track indices with very specific credit quality duration and characteristics) and offer some surprises.
  • The best ETFs are low-cost, which is even more important when investing in bonds than stocks: each additional point paid in spending is one point less in return, and returns are often harder to come by with bonds than stocks.
  • ETFs are easy to buy and sell.

A good place to start your search for the best bond ETFs is with Morningstar’s analyst ratings. The ETF that earned our highest rating, gold, is the ETF we believe is most likely to outperform during the full market cycle.

Here is a list of the best bond ETFs in three main groups: base bond funds, short-term bond funds, and specialty bond funds.

6 Best Core Bond ETFs

All of these ETFs fall into one of Morningstar’s medium-term bond categories and earned our Gold Analyst rating as of November 2022.

1) Ffnd ETF Bond Total Fidelity

2) iShares Core Total USD IUSB Bond Market ETF

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  • Best Equity ETFs

3) iShares Core U.S. Aggregate Bond ETF AGG

4) SPDR ETF SPAB Portfolio Aggregate Bonds

5) Vanguard VTEB ETF Tax-Free Bonds

6) Vanguard Total BND ETF Bond Market

The high-rated ETFs on this list would be a good option for anchoring the bond portion of an investor’s portfolio, assuming the money target is more than five years apart.

IShares Core U.S. Aggregate Bond ETF, SPDR Portfolio Aggregate Bond ETF and Vanguard Total Bond Market ETF are classified as medium-term core bond ETFs by Morningstar, meaning they invest in a mix of investment-grade U.S. bonds, including government, corporate, and securitized debt. Meanwhile, Fidelity Total Bond ETF and iShares Core Total USD Bond Market ETF qualify as core plus medium-term bond  ETFs; in addition to investing in investment-grade U.S. bonds, the fund has more flexibility to also buy high-yield corporate bonds, bank loans, and emerging market debt.

Finally, the Vanguard Tax-Exempt Bond ETF is  a top-rated municipal bond ETF covered by Morningstar. This is a good option for those who invest in taxable accounts and are at a high tax rate. (Learn more about who is the most suitable municipal bond fund for in   “What is a municipal bond?”   )

4 Best Short-Term Bond ETFs

All of these ETFs fall into the category of ultra-short bonds or short-term bonds and earned our best gold analyst rating as of November 2022.

1) Pimco Enhanced Short Maturity Active MINT ETF

2) Pimco Enhanced Short Maturity Active ESG ETF EMNT

3) Vanguard Short-Term Corporate Bonds ETF VCSH

4) Vanguard Treasury Short-Term ETF VGSH

The top-rated ETFs on this list are a good option for those who want to invest in bonds but hope to capitalize on these investments in the coming years.

Both the Pimco Enhanced Short Maturity Active ETF and the Pimco Enhanced Short Maturity Active ESG ETF qualify as ultra-short bond ETFs. ETFs in this category support high-quality bonds with a duration of less than one year.

Vanguard Short-Term Corporate Bond ETF and Vanguard Short-Term Treasury ETF fall into our short-term and short-term bond categories respectively. As the name suggests, short-term government ETFs focus exclusively on short-term bonds issued by the U.S. government, while short-term bond ETFs can invest in high-quality corporate bonds as well as government bonds. In both cases, ETFs support bonds with durations in the range of one to three years.

4 Best Specialty Bond ETFs

All of these ETFs fall into one of Morningstar’s special bond categories and earned our top gold analyst rating as of November 2022.

1) Schwab TIPS ETF SCHP

2) Vanguard Long-Term Bond ETF BLV

3) Vanguard Long-Term Corporate Bonds ETF VCLT

4) VTIP Short-Term Securities Vanguard

The top-rated ETFs on this list are what we call “satellite” holdings in bond portfolios. In other words, they are not core holdings, but an investor can hold these ETFs to complete a portfolio of bonds, to make tactical moves, or to serve some other special interest.

The list includes two of the best bond ETFs for inflation protection, the Schwab U.S. TIPS ETF and the Vanguard Short-Term Inflation-Protected Securities ETF. Both ETFs land in our inflation-protected bond category and invest in securities that adjust their core value in line with the inflation rate, which may be of interest to some current investors (especially retirees) as inflation continues to rise.

The other two specialist funds on the list, Vanguard Long-Term Bond ETF and Vanguard Long-Term Corporate Bond ETF, concentrate on long-duration bonds, meaning the ETF is highly sensitive to interest rate changes and highly volatile by bond fund standards. They can be used as a way to profit from a rate cut or as a tool to equalize long-term liabilities.

How to Find More Top ETFs

ETFs are often equated with low-cost indexing. But the ETF market is becoming more and more complicated. Some ETFs track a very narrow share of the market or pursue a specific topic. Some ETFs invest based on certain factors or a combination of them. And now there are even actively managed ETFs. To help determine which ETF is best for you, read “What is an ETF? Morning Star ETF guide.”  Investors  looking for the best stock ETFs can also look at the “Best Stock ETFs.”

Investors who want to be more active and find ETFs based on their own preferred criteria can use  our new Morning Star Investor Screener. This tool, which is available to Morningstar Investor members, allows investors to evaluate ETFs based on several criteria, including asset class, Morningstar category, analyst rating, and cost level. Morningstar Investor members also have access to a comprehensive list of highly rated ETFs.