The treasury bond ETFs are a great alternative to the other bond funds as they have a much lower expense ratio and thus tend to give out better returns. Especially the best treasury bonds can help investors invest directly in the best government bonds of the U.S.
The treasury ETF is the way to go for those looking for a level of protection while investing in the stock market. Bond index funds are low-risk assets. Also, they provide great diversity to the invested money and automatically allow to reinvest the bond payments.
Treasury ETFs are comprised of a bundle of Treasury securities. Most of which have a focus on a certain maturity or range of maturities.
Recently, I noticed that investors had developed a great interest in investing in treasury ETFs due to the enormous benefits it provides. So, to help you all, I researched the best treasury ETF that can enhance your portfolio.
Key Takeaways
- A treasury bond ETF has a lower-risk profile.
- The bond ETF invests in a collection of bonds and debt instruments.
- The treasury ETFs usually have lower expense fees compared to mutual funds.
- Treasury ETFs invest in bonds and track an index of bonds meant to replicate the performance of the underlying index.
- The bond index had a total return of -3.9%, which was very less compared to 28% of the S&P 500 in 2021.
What Are Treasury Bond ETFs?
The primary objective of a treasury ETF is to provide investors with an opportunity to invest directly in government debt. This helps diversify the portfolios and provides a cushion against any loss that might be experienced during the recession.
Treasury Bond ETFs also allow you to make low-risk investments due to the extremely low volatility involved. The securities are backed by the Federal government, making them good options for investment purposes.
In addition, they have a low expense ratio. Also, it provides tax benefits on dividends received from these funds. The advantage of indexation significantly lowers the tax burden for investors in bond ETFs.
List of Best Treasury ETFs Available
Now, let me introduce some of the best treasury bonds available in the market that are worth including in the portfolio.
Short Term Bond ETFs –
I learned that SHY could be a great ETF to park assets in volatile markets. This popular ETF gives you a diversified portfolio of shorter-term bonds. However, it is evident based on its past performance that it won’t deliver much of the current yield. The interest rate risk and credit risk of SHY are both minimal. Remember, it provides a very modest anticipated return.
- Issuer – Blackrock
- Inception Date – Jul 22, 2002
- Index Tracked – ICE U.S. Treasury 10-20 Year Bond Index
- Legal Structure – Open-Ended Fund
- Expense Ratio – 0.15%
- AUM – $21.40B
- Dividends (Monthly) – 0.3%
- Net Assets – $20.6 B
- ESG Ratings – 6.10 / 10 (A)
- Number of Holdings – 79
- Top 10 Holdings % – 53.88%
2. SPDR Bloomberg 1-3 Month T-Bill ETF (BIL)
BIL is among the best government bonds which seek to track the ultrashort end of the maturity curve. The ETF seeks to provide investors diversification and exposure to zero-coupon U.S. Treasury securities with a 1-3 months maturity.
Short-term fixed-income investments are less exposed to interest rate changes than longer-term investments. Therefore, you can earn a great deal of money by investing in this short-term ETF.
- Issuer – State Street Global Advisors
- Inception Date – May 25, 2007
- Index Tracked – Bloomberg 1-3 Month U.S. Treasury Bill Index
- Legal Structure – Open-Ended Fund
- Expense Ratio – 0.14%
- AUM – $14.03B
- Net Assets – $13.6 B
- ESG Ratings – 6.10 / 10 (A)
- Top 10 Holdings % – 89.9%
The IEI tracks the performance of the index included in U.S Treasury bonds. The index consists of only those with remaining maturities between 3 to 7 years. In my analysis, I found it to be more return-oriented than SHY.
However, it also provides low-interest rate risk, but a higher return is a plus point. If you want to maintain fixed-income investments exposure, IEI is best for you.
- Issuer – Blackrock
- Inception Date – Jan 05, 2007
- Index Tracked – ICE U.S. Treasury 3 -7 Year TR
- Legal Structure – Open-Ended Fund
- Expense Ratio – 0.15%
- AUM – $10.04B
- Dividends (Monthly) – 0.8%
- Net Assets – $10.31B
- ESG Ratings – 6.10 / 10 (A)
- Number of Holdings – 63
- Top 10 Holdings % – 54.7%
Long Term Treasury ETFs –
1. SPDR® Portfolio Long Term Treasury ETF (SPTL)
SPDR measures the performance of public obligations of the U.S Treasury with a remaining maturity of 10 years or more. However, it doesn’t track inflation-protected bonds. It is based on market capitalization and reconstructed on the last business day of the month.
- Issuer – State Street Global Advisors
- Inception Date – May 23, 2007
- Index Tracked – Bloomberg Long U.S. Treasury Index
- Legal Structure – Open-Ended Fund
- Expense Ratio – 0.06%
- AUM – $4.71B
- Dividends (Monthly) – $0.06
- Net Assets – $4.87B
- ESG Ratings – 6.10 / 10 (A)
- Number of Holdings – 63
- Top 8 Holdings % – 23.36
2. Vanguard Long-Term Treasury ETF (VGLT)
The VGLT’s portfolio investment strategy is designed to track the performance of the Bloomberg U.S. Long Treasury Index. It is a long-term treasury ETF. The bond index comprises fixed-income securities issued by the United States. At least 80% of a fund’s assets are usually invested in the index’s bonds under normal circumstances.
- Issuer – Vanguard
- Inception Date – Nov 19, 2009
- Index Tracked – Bloomberg Long U.S. Treasury Index
- Legal Structure – Open-Ended Fund
- Expense Ratio – 0.04%
- AUM – $3.34B
- Dividends (Monthly) – $0.14
- Net Assets – $3.20B
- ESG Ratings – 6.10 / 10 (A)
- Number of Holdings – 66
- Top 10 Holdings % – 30.28
30 Year Bond ETFs –
1. Invesco 1-30 Laddered Treasury ETF (PLW)
If you are trying to invest in a 30 year treasury ETF, I recommend this one. It tracks the investment results of the Ryan/NASDAQ U.S 1-30 Year Treasury Laddered Index. The ETF invests at least 80% of its total assets in the index’s components. Let’s see what this 30 year bond ETF has to offer.
- Issuer – Invesco
- Inception Date – Oct 11, 2007
- Index Tracked – Ryan/NASDAQ 1-30 Year Treasury Laddered Index
- Legal Structure – Open-Ended Fund
- Expense Ratio – 0.25%
- AUM – $414.18 B
- Dividends (Monthly) – 1.3%
- Net Assets – $416 M
- ESG Ratings – 6.10 / 10 (A)
- Number of Holdings – 27
- Top 10 Holdings % – 47.4%
Recommended Treasury ETFs
The above-mentioned treasury ETFs were the best performing in the short term and long term. The below-given ones are those that I think will be best for your portfolio. So let’s have a look at them.
1. SPDR Portfolio TIPS ETF (SPIP)
The ETF is intended to provide a reasonably priced alternative for investors who want to protect their wealth against inflation’s destructive effects. SPIP attempts to keep track of the Bloomberg US Government Inflation-Linked Bond Index’s performance. The average duration of the fund’s holdings is 8.8 years.
- Issuer – State Street Global Advisors
- Inception Date – May 25, 2007
- Performance Over One – Year – 6.8%
- Index Tracked – Bloomberg U.S. Government Inflation-linked Bond Index
- Legal Structure – Open-Ended Fund
- Expense Ratio – 0.12%
- AUM – $3.72B
- Dividends (Monthly) – 7.3%
- Net Assets – $3.72 B
- ESG Ratings – 6.10 / 10 (A)
- Number of Holdings – 46
- Top 10 Holdings % – 29.9%
2. PIMCO 15+ Year US TIPS Index ETF (LTPZ)
The goal of the ETF is to assist investors in keeping the money’s purchasing power constant against inflation. Also, it provides a low default risk. However, it offers excellent potential for high returns if maturities are held longer. But, the catch is it increases the risk, and the exposure to changes in interest rate also increases.
- Issuer – PIMCO
- Inception Date – Sep 03, 2009
- Performance Over One-Year – 8.4%
- Index Tracked – ICE BofAML 15+ Year US Inflation-Linked Treasury Index
- Legal Structure – Open-Ended Fund
- Expense Ratio – 0.20%
- AUM – $933.72M
- Dividends (Monthly) – 5.4%
- Net Assets – $993 M
- ESG Ratings – 6.10 / 10 (A)
- Number of Holdings – 13
- Top 10 Holdings % – 94.8%
3. Goldman Sachs Access Inflation Protected USD Bond ETF (GTIP)
GTIP invests in a wide range of investment-grade bond securities issued by the United States. These include inflation-indexed as well as conventional fixed-income instruments. It invests almost 80% of its assets in underlying index securities.
- Issuer – Goldman Sachs
- Inception Date – Oct 2, 2018
- Performance Over One -Year – 6.8%
- Index Tracked – FTSE Goldman Sachs Treasury Inflation-Protected USD Bond Index
- Legal Structure – Open-Ended Fund
- Expense Ratio – 0.12%
- AUM – $208.20 M
- Dividends (Monthly) – 7.2%
- Net Assets – $209 M
- ESG Ratings – 6.10 / 10 (A)
- Number of Holdings – 24
- Top 10 Holdings % – 66.1%
These three treasury bond ETFs can help you diversify your portfolio. Also, they are low-risk profile ETFs, so it provides stability as well.
Benefits of Including Treasury ETFs in Portfolio
Now, you might be wondering whether treasury bond ETFs are suitable for your portfolio or not. It is a great investment option, and it has been providing great returns in the past few years.
Moreover, I have listed a few of the benefits that you can reap by investing in treasury bond ETFs.
Tax efficiency: Bond ETFs are known for their tax efficiency. Though they may be subject to short-term capital gains, their longer holding periods will provide long-term benefits. They are also known for significantly reducing capital gain taxes compared to other popular assets like mutual funds.
Long Term Investment: Treasury bond ETFs allow you to invest with small amounts of money periodically over a long period due to their low expense ratio and low portfolio turnover rate.
No need to buy bonds directly: The bond market, in general, is not as liquid as the stock market, with often considerably wider bid-ask spreads that cost investors actual money. When you buy a bond ETF, you benefit from the fund’s ability to obtain better pricing on its bond purchases, lowering your expenses as a result.
Wrap Up
I hope this article helps you invest in the best treasury bond ETFs. You can make a good amount of money by investing in these recommended hedged portfolios.
Moreover, many small-cap ETFs are also available to help you diversify the portfolio further. But, always ensure that you do proper research before investing.