3 Leveraged Bond ETFs Your Broker Forgot to Mention
With Apple (NASDAQ: AAPL) once again soaring to record heights and the S&P 500 flirting with its highest levels in two years, some investors may be apt to forget about bonds. At least for the moment. Still, ETF issuers have not been shy about testing the waters with a plethora of new bond funds this year.
New bond ETFs such as the PIMCO Total Return ETF (NYSE: BOND) and the WisdomTree Emerging Markets Corporate Bond Fund (NASDAQ: EMCB) have garnered plenty of attention and deservedly so. That also means some previously existing bond products are not grabbing headlines.
In particular, there are several anonymous leveraged bond funds investors might want to consider in an effort to jolt their near-term bond returns. Here are a few worth examining:
ProShares Ultra High Yield (NYSE: UJB) As if the iShares iBoxx $ High Yield Corporate Bond Fund (NYSE: HYG), the largest junk bond ETF by assets, is not volatile enough, there is a double-leveraged equivalent in the form of UJB.
UJB debuted in April 2011 and tracks the same index as HYG.
There are a few knocks on UJB. Apparently, investors have found HYG to be volatile enough because UJB has average daily turnover of just over 2,700 shares and the fund had just $4.3 million in assets under management at the end of the first quarter. Second, as is par for the course with leveraged ETFs, UJB is not cheap with an annual expense ratio of 0.95 percent.
In defense of UJB, the fund is up 14 percent in the past three months. The ProShares Short High Yield (NYSE: SJB) is the inverse, unleveraged answer to HYG and UJB.
ProShares Ultra Investment Grade Corporate (NYSE: IGU) For those that have become bored by the iShares iBoxx $ Investment Grade Corporate Bond Fund (NYSE: LQD), ProShares has a double-leveraged alternative in the form of IGU. IGU's volume of 7,600 share per day is better than UJB's turnover, but the former had just $2.54 million in AUM at the end of the second quarter.
And like UJB, IGU charges 0.95 percent per year. IGU has sharply outperformed LQD in the past three months, but LQD yields over three percent and pays a monthly dividend. Those are two facts that underscore the notion that IGU is nothing more than a short-term trading vehicle, not a buy-and-hold investment.
Powershares DB 3x Inverse Japanese Government Bond ETN (NYSE: JGBD) Proving that there are few limits to just how esoteric ETF issuers can get with new products, there is the Powershares DB 3x Inverse Japanese Government Bond ETN. There is something to be said for betting against Japanese bonds. The country long ago lost its AAA credit rating. Deficits and demographics are just two issues the world's third-largest economy must contend with in the coming years.
Like the other funds on this list, JGBD charges 0.95 percent, though there is cheaper a non-leveraged equivalent, the PowerShares DB Inverse Japanese Government Bond Futures ETN (NYSE: JGBS). That product has an annual expense ratio of 0.5 percent.
For more on bond ETFs, click here.
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