From the February 2008 issue of Research Magazine • Subscribe!

Year of the Bond ETF

With so much happening in all directions, last year was insane for the ETF industry, even in relatively staid areas like fixed-income. The number of bond ETFs more than tripled last year.

Meanwhile, the median expense ratio of bond ETFs was an extremely competitive 0.20 percent. Compare that figure with the average for bond mutual funds and you'll see that as a group, bond ETFs are a bargain.

In December, State Street Global Advisors launched trading of the SPDR Lehman High-Yield Bond (JNK) ETF. The fund follows the Lehman Brothers High-Yield Very Liquid index, which consists of high-yield taxable corporate bonds with a remaining maturity of at least one year and generally sub-investment grades. Approximately 105 issues with $600 million or more of outstanding face value make up the index and the ETF charges an annual expense ratio of 0.40 percent.

In related news, the Vanguard Extended Duration Treasury ETF (EDV) is designed to track the Lehman Brothers Treasury STRIPS 20- to 30-Year Equal Par Bond Index, which includes zero-coupon U.S. Treasury securities (STRIPS) with maturities ranging from 20 to 30 years. A Treasury STRIP represents a single coupon payment from a U.S. Treasury security that has been "stripped" into separately tradable interest and principal components.

Also, Van Eck Global introduced the Market Vectors-Lehman Brothers AMT-Free Intermediate Municipal Index ETF (ITM). The fund follows the Lehman Brothers AMT-Free Intermediate Continuous Municipal index, a size-weighted index of publicly traded intermediate-term municipal bonds. It is a total return benchmark designed for high-quality and tax-efficient investments. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds and pre-refunded bonds.

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Ron DeLegge is the San Diego-based editor of www.etfguide.com.

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