Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Use This ETF To Help Navigate Volatile Markets

By Investing.com (Tezcan Gecgil/Investing.com )ETFsSep 29, 2020 09:42AM ET
www.investing.com/analysis/heres-an-etf-to-help-you-navigate-volatile-markets-200539154
Use This ETF To Help Navigate Volatile Markets
By Investing.com (Tezcan Gecgil/Investing.com )   |  Sep 29, 2020 09:42AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Equity markets are getting ready to wrap up a volatile September. The bears have been in control of broader indices. Short-term rallies were followed by larger declines, and many Wall Street darlings went down in price during the month.

VIX Weekly
VIX Weekly

Meanwhile, traders are keeping a close eye on the CBOE Volatility Index, the premier benchmark for U.S. stock market volatility. We have previously discussed the VIX and introduced an exchange-traded note (ETN) that could be appropriate for hedging short-term volatility.

The VIX finished August at 26.41. But on Sept. 4, it hit an intraday high of 36.27, marking the highest level seen since mid-June, around the time markets took a breather. The VIX is now back at about 26.

October will possibly bring heightened volatility. First, the new earnings season is almost here. Many heavyweights will report in the second half of the month. Any potential negative guidance, downward revision or a warning by leaders could make the markets nervous.

Then comes the 2020 U.S. presidential election, scheduled for Tuesday, Nov. 3, which could mean investors may depart equities in the final quarter of the year. Several U.S.-based brokers have already increased their margin requirements, citing increased volatility ahead of the election.

Although the VIX is currently trading around 26, VIX futures are painting a more choppy picture ahead. October and November contracts are trading well above 30. As a result, we may see a move toward "safer assets" in the coming weeks. Therefore, today we'll introduce an exchange-traded fund (ETF) that may be appropriate for the weeks ahead.

Vanguard Total Bond Market ETF

Current Price: $88.30
52-Week Range: $76.49-$89.59
Dividend Yield: 2.59%
Expense Ratio: 0.035%

The Vanguard Total Bond Market Index Fund ETF (NASDAQ:BND) provides exposure to investment-grade U.S. dollar-denominated bonds with a higher weight towards U.S. Treasuries (almost 60%). Many investors regard U.S. Treasuries as the safest haven besides gold. The fund was launched in 2007. It has extremely high liquidity with close to $290 billion in assets under management.

BND Weekly
BND Weekly

BND tracks the Bloomberg Barclays U.S. Aggregate Float Adjusted index, which measures the performance of a wide range of fixed-income securities in the U.S. They include government, corporate and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities—all with maturities of more than one year.

U.S. Treasury and agencies are the largest issuers (41.6%), followed by government mortgage-backed security issuers (21.8%). Next on the list are industrial (17.8%) and financial (8.9%) companies, foreign government bonds (4.8) and utility sector companies (2.3%).

So far in the year, the fund is up about 6%. Financial planners highlight that in diversified portfolios, bonds may provide downside protection, an income stream as well as a reduction in volatility. Previously, we discussed how fixed income returns may differ from equity investments.

Declining interest rates have so far been positive for bond returns. And with Federal Reserve Chairman Jerome Powell signalling interest rates will remain at historic lows at least until 2023, bonds may continue to stage a strong performance.

Another important concept is duration, which is a measure of the sensitivity of bond prices to interest rate movements. For example, if a bond has a duration of three years, its price would fall about 3% when interest rates rise 1 percentage point. On the other hand, the bond's price would go up about 3% when interest rates fall by 1 percentage point.

Put another way, a high duration means a small change in interest rates could have a large effect on the value of the bond. Holding investments with a maturity of more than 20 years could become a risky proposition. BND has an average duration of 6.5 years, which means it is in the intermediate maturity category. As a result, it is less sensitive to interest rate fluctuations than funds with longer maturities. The closer a bond is to maturity, the less interest-rate risk it carries.

We believe BND may be appropriate for investors who need to take some risk off the table while still allowing for acceptable levels of returns. For example, an investor may need a certain amount of money (such as for an upcoming purchase or paying for education) in the coming years. Then a fund with a fixed-income focus may be more appropriate.

Bottom Line

Although we cannot predict how choppy markets will be in October and November, the VIX index futures are urging caution. Therefore, allocating funds into a bond portfolio could be appropriate for retail investors. But the global bond market and the range of exchange-traded funds are quite diverse.

Other funds could also be of interest in addition to the Vanguard Total Bond Market ETF. They include:

  • iShares Core U.S. Aggregate Bond ETF (NYSE:AGG),
  • PIMCO Enhanced Short Maturity Active Exchange-Traded Fund (NYSE:MINT),
  • Schwab U.S. Aggregate Bond ETF™ (NYSE:SCHZ),
  • SPDR Barclays Aggregate Bond (NYSE:SPAB),
  • Vanguard Total International Bond Index Fund ETF Shares (NASDAQ:BNDX)
Use This ETF To Help Navigate Volatile Markets
 

Related Articles

Use This ETF To Help Navigate Volatile Markets

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (2)
Sahadut Sahadat
Sahadut Sahadat Sep 30, 2020 12:09PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
thank you
Joy Ellington
Joy Ellington Sep 29, 2020 11:05AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thank you
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email