General Fixed Income

Fixed Income ETFs Fixed income ETFs, designed to generally track bond market indexes, share many of the same benefits of equity ETFs, including: Tax efficiency Lower costs (ordinary brokerage commissions apply) Transparency Buying and selling flexibility All day tracking and trading Diversification Wide array of investment strategies

In addition, fixed income ETFs also offer individual investors: Tracking of bond indexes A convenient way to allocate assets to bonds Unprecedented intraday pricing of baskets of bonds Interest rate risk management strategies Monthly income

To view fixed income FAQs, click here.

Tracking of bond indexes The expansion of the ETF universe into the bond market increases indexing opportunities to include bonds of different maturities and credit quality. Each fixed income ETF seeks results that correspond to the price and yield performance of its underlying index.

A convenient way to allocate assets to bonds The benefits of ETFs make them an excellent asset allocation alternative to individual bonds and bond mutual funds. Unlike individual bonds, fixed income ETFs provide diversification with one trade, transparency of pricing throughout the day on an exchange, and low minimum investments. When investors compare fixed income ETFs to bond mutual funds, they may find the intraday pricing and trading, transparency of holdings, and lower expense ratios of ETFs a more attractive way to allocate assets to the bond market.

Unprecedented intraday pricing of baskets of bonds Individual investors do not have easy access to bond prices as they do with stocks, making it difficult to verify prices paid to brokers for individual bonds, while bond mutual funds are only priced once a day. The continuous pricing of fixed income ETFs allows individual investors to see for the first time intraday pricing of portfolios of bonds.

Interest rate risk management strategies Because ETFs can be purchased on margin and sold short, individual investors can now use interest rate risk management strategies once available only to institutional investors. For example, fixed income ETFs can be sold short to hedge interest rate fluctuations. In a rising interest rate environment, profits from a short position can offset some of the losses in a portfolio. Investors are required to make arrangements to borrow securities before selling short and should contact their broker regarding initial and maintenance margin requirements.

Monthly income Fixed income investments are often used as a source of regular income. Fixed income ETFs declare and pay dividends, if any, on a monthly basis.

FAQs

What are fixed income ETFs?

Fixed income ETFs are bond index funds that are listed and traded intraday on an exchange. They allow investors to buy or sell shares in the collective performance of an entire bond portfolio as a single security. ETFs add the flexibility, ease and liquidity of stock trading to the benefits of traditional bond index fund investing.

Why buy fixed income investments?

Diversifying into fixed income investments may provide stability to an equity portfolio because the bond market is often less volatile than the stock market.

Do fixed income ETFs pay dividends?

Yes. Dividends, if any, will be distributed on a monthly basis, similar to bond mutual funds.

How will fixed income ETFs be taxed?

Dividends paid out of an ETF's net investment income and net short-term capital gains, if any, are taxable as ordinary income. Distributions of long-term capital gains, if any, in excess of any short-term capital losses, are taxable as long-term capital gains.

Will fixed income ETFs be as tax efficient as equity ETFs?

Because fixed income ETFs typically have higher yields than equity ETFs, they may not be as tax efficient. In addition, the deletion of maturing bonds from bond indexes and the addition of newly issued bonds may result in higher turnover rates than equity funds.

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