Why Bonds aren’t moving like Bond ETFs

It’s easy enough to start surfing the web, looking for low cost investments and end up in the ETF space. The ETF has been the answer to the demands of investors looking for asset class (or sub asset class, or inverse asset class, and so on ad infineum) exposure on the cheap, in a sort of give me the returns without the hassle. Welcome to the age of the “Robo-Advisors.” Just today, Goldman Sachs released a report (that we read via Josh Brown) that ETF Assets are going to double to $6 Trillion by 2020 (yes that’s a T– as in trillion).

We can’t help but notice that with this growth in ETF assets might also come some growth in confused investors. Let’s take the Bond market, and the past couple of months for Bond ETFs $BND and $AGG as an example. The $BND ETF tracks the Barclays Capital U.S. Aggregate Index. That index is comprised of Treasury, Corporate Related, Government Related, and Securitized related bonds via the Barclays Factsheet.  All that is fine.

But investors might not equate that exact index with the ‘bond market’ as they hear about it on a daily basis. We’re talking the constant mentions of the 30yr US Treasuries and 10yr US Note interest rates. Turns out, the $BND ETF has just a 29.48% allocation to the 10 year note and a 7.92% allocation to 30 year. And that there’s also allocations to mortgaged backed securities, gold, and Verizon bonds (corporate securities). The idea here is to give the investor a broad allocation to the whole bond market (not just the US Bond portion), and most investors understand that, and most probably know what they’re signing up for.

But we can’t help but think a few investors are going to be a little shocked the next time Treasuries diverge significantly from the overall bond index. Over the past two months, the US 30 year Bonds have moved lower around -9.15%, while the 10 year note moved -4.15%. But when we take a look at the etf $BND, it’s only down -0.78% {past performance is not necessarily indicative of future results}. Now, this isn’t likely to scare anybody, but we can’t help but wonder what happens when the roles are reversed. What will investors think when the “Bonds” on their TB (US treasuries) are up/rates down, and the $BND ETF is down because corporates and the rest have diverged. The divergence is to the benefit of the investor right now, but could easily flip in the future.

Anyway, we digress… here’s all of the different asset classes through the first 5 months of the year – with that Bond market sneakily up, despite what we know is happening in the biggest bond market – US Treasuries.  Here’s you go:

Asset Class Scoreboard May_1Asset Class Scoreboard May Chart(Disclaimer: past performance is not necessarily indicative of future results.)
Source: All ETF performance data from Morningstar.com
Sources: Managed Futures = Newedge CTA Index, Cash = 13 week T-Bill rate,
Bonds = Vanguard Total Bond Market ETF (BND),
Hedge Funds= IQ Hedge Multi-Strategy (QAI)
Commodities = iShares GSCI ETF (GSG);
Real Estate = iShares DJ Real Estate ETF (IYR);
World Stocks = iShares MSCI ACWI ex US Index Fund ETF (ACWX);
US Stocks = SPDR S&P 500 ETF (SPY)

 

 

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.