Best Fixed-Income ETFs of 1H22

Rising rate worries are gripping the whole world, crippling the investing scenario again with uncertainty. Volatility may become the name of the game thanks to a host of factors ranging from rising inflation in the United States and other parts of the developed world, fears of a slowdown in China and the resultant pressure on supply chain and global growth, and geopolitical issues.

As rising rate worries have been prevalent with the Fed hiking rates faster this year, both bond and stock investing is bearing the brunt. The Fed enacted a 75-bp rate hike late last week. The rise in rate was the biggest since 1994. The outcome is a slowdown in economic growth. In total, the Fed has enacted a 150-bp rate hike so far this year.

The inflation projection has been upped for this year, while the Fed expects inflation to cool off in 2023 and 2024. The federal funds rate is projected to be 3.4% for 2022 from 1.9% in March, 3.8% for 2023 from 2.8% and 3.4% for 2024 from 2.8%. No wonder, the S&P 500 and the Nasdaq have entered into a bear market this year.

Since rates and bond prices are inversely related, bond ETFs have fallen this year. iShares 20+ Year Treasury Bond ETF TLT is off 24% in 2022, while iShares Short-Term Treasury Bond ETF SHV is off just 0.3%. Still, some interest-protected bonds have managed to fare better than the regular bond ETFs. Against this backdrop, below, we highlight a few fixed-income ETFs that have gained this year.

ETFs in Focus

FolioBeyond Rising Rates ETF RISR – Up 31.2%

RISR invests primarily in interest-only mortgage-backed securities (MBS IOs) and U.S. Treasury bonds.

WisdomTree Floating Rate Treasury Fund USFR – Up 0.5%

The underlying Bloomberg U.S. Treasury Floating Rate Bond Index is a rules-based, market value-weighted index engineered to measure the performance of floating rate US Treasury bonds.

iShares Treasury Floating Rate Bond ETF (TFLO) – Up 0.4%

The underlying Bloomberg U.S. Treasury Floating Rate Index is a market capitalization-weighted index that measures the performance of floating rate public obligations of the U.S. Treasury.

ClearShares Ultra-Short Maturity ETF OPER – Up 0.2%

The ClearShares Ultra-Short Maturity ETF is an actively managed portfolio seeking current income by investing in repurchase repo agreements, collateralized by U.S. Government Securities and other fixed-income instruments.

iShares 0-3 Month Treasury Bond ETF SGOV – Up 0.2%

The underlying ICE 0-3 Month US Treasury Securities Index comprises of U.S. Treasury bonds with remaining maturities less than or equal to three months.

iShares iBonds 2022 Term High Yield & Income ETF IBHB – Up 0.1%

The underlying Bloomberg 2022 Term High Yield and Income Index comprises U.S. dollar-denominated, high-yield and other income-generating corporate bonds maturing in 2022 (read: Time for Cash-Like ETFs?).

SPDR Bloomberg 1-3 Month T-Bill ETF BIL – Up 0.1%

The underlying Bloomberg 1-3 Month U.S. Treasury Bill Index includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value.

Invesco VRDO Tax-Free ETF PVI – Up 0.06%

The underlying ICE US Municipal AMT-Free VRDO Constrained Index tracks the performance of U.S. dollar tax-exempt VRDOs that are publicly issued by U.S. states and territories, and their political subdivisions, and that have interest rates that reset daily, weekly or monthly.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.