8 Best Bond ETFs To Invest In for 2024

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Bond funds offer a way for investors to generate income and capital appreciation from a portfolio that’s run by professional money managers. Not only do investors benefit from professional management, but they also don’t have to worry about doing their own research into individual bonds, figuring out which are the best options and then buying and selling them on the proper exchange. Bond funds also give investors access to a wide variety of bonds that they may not be able to research or even purchase on their own, from high-yield bonds to emerging market bonds and so on.

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Exchange-traded funds offer an additional level of convenience for investors, as they are able to be bought or sold on an exchange whenever the market is open. This removes one of the major drawbacks of traditional mutual funds, which can only be bought or sold at the close of each business day. Most bond ETFs also have very low expense ratios, as they often simply track a bond index and don’t incur the higher fees that more actively traded funds impose.

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8 Best Bond ETFs for 2024

In recent years, bond ETF performance has suffered due to rising interest rates. However, for those looking for income, many of these funds still pay a significant amount of income, making them a good investment for the right investor. With that in mind, here’s a list of the best bond ETFs for 2024:

• Fidelity Total Bond ETF (FBND)
• iShares Core Total USD Bond Market ETF (IUSB)
• iShares Core U.S. Aggregate Bond ETF (AGG)
• Vanguard Tax-Exempt Bond Index Fund ETF (VTEB)
• Vanguard Total Bond Market ETF (BND)
• iShares 7-10 Year Treasury Bond ETF (IEF)
• iShares 20+ Year Treasury Bond ETF (TLT)
• DoubleLine Commercial Real Estate ETF (DCRE)

To be considered among the best, a bond ETF must have low costs, solid relative performance and the ability to deliver on its stated investment objectives. Not all of these bond ETFs will be appropriate for all investors, as they vary in terms of what they own and how risky they are. But if you’re looking to invest in a bond ETF, at least one of these should be an appropriate choice for you.

1. Fidelity Total Bond ETF (FBND)

• Total assets: $8.78 billion
• Year-to-date performance as of April 12: -2.19%

Unlike most of the funds on this list, the Fidelity Total Bond ETF is actively managed. Rather than passively tracking an index, fund managers trade bonds in this ETF in an effort to garner the highest return possible. The fund currently has a weighted average maturity of nine years and a yield of 5.08%. Its turnover ratio is 233%, meaning investments are generally bought and sold quite rapidly, part of the reason the fund’s expense ratio of 0.36% is higher than most passive ETFs.

The fund’s active management strategy seems to be paying off, as it has handily outperformed its benchmark index for the YTD, one-year, three-year and five-year periods. While active management can make the fund’s returns a bit more unpredictable, thus far, investors have likely been happy with the results.

2. iShares Core Total USD Bond Market ETF (IUSB)

• Total assets: $27.6 billion
• YTD performance as of April 12: -2.24%

If you’re looking for a passive way to access the total U.S. dollar bond market, the iShares Core Total USD Bond Market ETF is a good candidate. The fund is extremely well diversified, with over 16,000 individual positions, and it holds more than just investment-grade bonds, offering exposure to the high-yield market as well.

The fund’s average duration is 5.78 years, and it pays a yield of 4.74%. It charges an expense ratio of 0.06%, and its five-year average annual return is 0.64%.

3. iShares Core US Aggregate Bond ETF (AGG) 

• Total assets: $104.2 billion
• YTD performance as of April 12: -2.64%

The iShares Core U.S. Aggregate Bond ETF is one of the most popular bond ETFs in the world. The fund tracks the entire U.S. investment-grade bond market and has over 11,000 holdings. Two-thirds of the fund consists of U.S. Treasurys and mortgage-backed securities, with a weighted average maturity of just over eight years and a 30-day SEC yield of 4.48%.

With its ultra-low 0.03% expense ratio, the ETF performs very much in line with its benchmark. Unfortunately, the benchmark hasn’t done much over the past 10 years, averaging a return of just 1.5% annually.

4. Vanguard Tax-Exempt Bond Index Fund ETF (VTEB)

• Total assets:  $32.16 billion
• YTD performance as of April 12: -1.51%

If you’re looking for tax-exempt income, the Vanguard Tax-Exempt Bond Index Fund ETF might be a solid choice for you. Municipal bonds pay interest that is federally tax-free, and it’s often also exempt in the state where it is issued. The fund has an intermediate duration of 6.5 years and a current yield of 3.57%. For investors in a high tax bracket, this is a generous after-tax yield.

Bonds rated AAA or AA comprise 79% of the portfolio, making the ETF a very high-quality option. Its expense ratio of 0.05% isn’t the absolute lowest among bond ETFs, but is still exceedingly low, allowing it to track its index very well. The average annual return over the past five years is 1.60%.

5. Vanguard Total Bond Market ETF (BND)

• Total assets: $104.96 billion
• YTD performance as of April 12: -2.57%

The Vanguard Total Bond Market ETF is the largest bond ETF in the world. The ETF owns securities across the entire investment-grade bond universe, from Treasury bills and agency bonds to corporate and mortgage-backed securities.

The maturity of the fund is decidedly tilted toward the short end, and it sports a current yield of 3.60%. The fund benefits from a minuscule expense ratio of just 0.03%, meaning it costs investors only $3 for every $10,000 they invest.

6. iShares 7-10 Year Treasury Bond ETF (IEF)

• Total assets: $27.9 billion
• YTD performance as of April 12: -3.46%

For some investors, seven- to 10-year bonds are the sweet spot in terms of risk and return. Bonds with these types of intermediate maturities can react positively in a falling-rate environment, but they aren’t so risky that they could drop dramatically in price if rates were to reverse higher. The fund carries little credit risk, as its only investments are U.S. Treasury bonds.

In a traditional market, intermediate bonds will pay higher yields than shorter-term bonds. Currently, IEF pays a 4.12% SEC yield, with an average duration of 7.29 years.

7. iShares 20+ Year Treasury Bond ETF (TLT)

• Total assets: $46.85 billion
• YTD performance as of April 12: -7.8%

One of the riskiest bond ETFs on this list in terms of interest-rate risk is the iShares 20+ Year Treasury Bond ETF. This is because, as the name implies, 97% or more of TLT is composed of bonds with maturities of at least 20 years. The longer a bond’s maturity, the more susceptible it is to moves in interest rates, for better or worse. This means in a rising-rate environment, like the market has experienced over the past few years, the principal in this fund will suffer.

That accounts for the ETF’s return of negative 9% per year over the past three years, along with its weak YTD performance. Of course, in exchange for this risk, investors typically earn a higher yield. Currently, TLT yields 4.33%.

8. DoubleLine Commercial Real Estate ETF (DCRE)

• Total assets: $127.2 million
• YTD performance as of April 12: 1.61%

For something a bit different, investors might want to look at the DoubleLine Commercial Real Estate ETF. This is a very short-term fund, with an average duration of 1.1 years, and it invests solely in high-quality mortgage-backed securities, with over 94% having a rating of AAA.

The ETF sports a 30-day SEC yield of 5.39%, which is high for such a short-term portfolio, making it a potential choice for those seeking higher yields in a bond ETF. However, its expense ratio is also fairly high, at 0.39%. This is primarily due to the fact that the fund is relatively new and still creating a track record, with an inception date of March 31, 2023.

What Is the Best Bond ETF?

As to which bond ETF is the absolute best, that’s a determination that must be made by each individual investor. Although bonds in general are considered safer and less volatile than stocks, there are certainly exceptions to this rule. That’s why investors still have to do research into what a bond ETF actually owns, how it trades and what its risk/reward profile looks like.

As with any investment, you should seek a bond ETF that matches your own personal investment objectives and risk tolerance. If you want to keep your money safe and sleep at night, for example, you won’t want to dabble in a high-yield bond ETF, which can be subject to large swings in price. Similarly, if you’re looking to generate capital gains in a falling interest rate environment, you’ll want to avoid short-term or floating rate bond ETFs, as they aren’t as likely to benefit in that scenario.

What To Consider When Picking Bond ETFs

There are so many different bond funds to pick from that the selection process can get overwhelming. However, the first step is to only consider bond funds with characteristics that suit your investment profile and risk tolerance. This means picking those that provide the highest level of income and total return possible while still allowing you to sleep at night. You can help the process by only searching for funds that are highly rated by outside agencies like Morningstar, with its famous star ratings.

Data was compiled on April 15, 2024, and is subject to change.

Editorial Note: This content is not provided by any entity covered in this article. Any opinions, analyses, reviews, ratings or recommendations expressed in this article are those of the author alone and have not been reviewed, approved or otherwise endorsed by any entity named in this article.

This article originally appeared on GOBankingRates.com: 8 Best Bond ETFs To Invest In for 2024