Worst Performing Fixed Income ETFs

These ETFs are lagging in a year in which most fixed income ETFs have surged.

sumit
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Senior ETF Analyst
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Reviewed by: Sumit Roy
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Edited by: Sumit Roy

Earlier this month, ETF.com took a look at best-performing fixed income ETFs of the year. That list was chock full of funds tied to hybrid securities like preferred stocks and convertible bonds, but also included high yield bond ETFs and even investment grade bond ETFs.

Indeed, it’s been hard to go wrong with any fixed income ETF this year, as interest rates have tumbled to multimonth lows on the back of concerns about the trade war and the general health of the global economy.

Still, as is always the case, even within an outperforming asset class, some ETFs do better than others. We’ve already taken a look at the best of the bunch; today, we take a look at the other side of the ledger.

Worst Performers, Not Poor Performers

Unlike with other asset classes, when it comes to fixed income, being on the worst-performers list doesn’t necessarily mean a fund is doing poorly.

Sure, there are inverse bond ETFs that bet against things like the surging 30-year Treasury, which are getting hammered this year. The iPath US Treasury Long Bond Bear ETN (DLBS) is down 17.1% this year, an unequivocally bad return. But strip out the inverse and leveraged products, and the results are much more benign.

The resulting list includes funds, such as low duration ETFs, that by design aren’t going to offer much in the way of yield or fluctuate all that much, regardless of what interest rates do (albeit, low duration funds do tend to underperform during periods, like 2019, when interest rates are falling).

Underperformance in fixed income is, of course, a relative thing. Among the 15 worst-performing ETFs in the space, only two actually have negative returns; the rest have returns between 0.4% and 1%.

US Dollar Weighs On Int’l Bond Returns

The only two fixed income ETFs with negative year to date returns are international funds—the iShares 1-3 Year International Treasury Bond ETF (ISHG) and the SPDR Bloomberg Barclays Short Term International Treasury Bond ETF (BWZ)—with losses of 1.4% and 0.4%, respectively.

 

Worst-Performing Fixed Income ETFs (excluding leveraged/inverse)

TickerFundYTD Return (%)
ISHG iShares 1-3 Year International Treasury Bond ETF-1.40
BWZSPDR Bloomberg Barclays Short Term International Treasury Bo…-0.38
PVIInvesco VRDO Tax-Free Weekly ETF0.43
FUMB First Trust Ultra Short Duration Municipal ETF0.50
LEMB iShares J.P. Morgan EM Local Currency Bond ETF0.63
FTSDFranklin Liberty Short Duration U.S. Government ETF0.63
IBMHiShares iBonds Sep 2019 Term Muni Bond ETF0.63
IBND SPDR Bloomberg Barclays International Corporate Bond ETF0.85
MEAR iShares Short Maturity Municipal Bond ETF0.85
JMST JPMorgan Ultra-Short Municipal Income ETF0.86
KCNY KraneShares E Fund China Commercial Paper ETF0.87
BIL SPDR Bloomberg Barclays 1-3 Month T-Bill ETF0.90
OPER ClearShares Ultra-Short Maturity ETF0.92
TFLO iShares Treasury Floating Rate Bond ETF0.92
IBMI iShares iBonds Sep 2020 Term Muni Bond ETF0.94

Data measures total returns for the year to date period through May 24

Both ISHG and BWZ hold sovereign debt with maturities of one to three years. But while ISHG only focuses on debt of developed markets outside the U.S., BWZ holds a more expansive portfolio that includes some emerging market debt as well.

International sovereign debt hasn’t done poorly this year, and in fact, has largely rallied along with Treasuries. Rather, it’s the two ETFs’ exposure to foreign currencies that has hurt returns, as the U.S. dollar climbed to a two-year high in 2019.

Ultra-Short Duration = Low Returns

Aside from ISHG and BWZ, all the other ETFs on the worst-performers list have positive year to date returns. That includes a host of short duration and floating rate bond ETFs, which have little in the way of interest rate risk, but also have low yields.

Short-term muni bond ETFs, in particular, like the Invesco VRDO Tax-Free Weekly ETF (PVI), the First Trust Ultra Short Duration Municipal ETF (FUMB) and the iShares iBonds Sep 2019 Term Muni Bond ETF (IBMH), are prominent on the worst-performers list.

An ultra-short maturity Treasury bill ETF, which is defined as holding Treasuries with less than one year to maturity, also finds itself on the list: the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL).

Other Int’l Underperformers

Rounding out the worst performers list is a handful of international bonds ETFs. We already discussed ISHG and BWZ, but unlike them, the following three funds are still up year to date, just not by much.

The iShares J.P. Morgan EM Local Currency Bond ETF (LEMB), the KraneShares E Fund China Commercial Paper ETF (KCNY) and the SPDR Bloomberg Barclays International Corporate Bond ETF (IBND) returned a little more than 0.5% so far this year, with exposure to foreign currencies weighing down gains.

LEMB focuses on local currency emerging market debt, KCNY tracks renminbi-denominated short-term corporate debt in China, and IBND provides broad exposure to the global investment grade bond market outside of the U.S.

​Email Sumit Roy at [email protected] or follow him on Twitter @sumitroy2

Sumit Roy is the senior ETF analyst for etf.com, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining etf.com, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for etf.com, with a particular focus on stock and bond exchange-traded funds.

He is the host of etf.com’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays, etf.com’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.