A period of rising interest rates is always an interesting time for bond exchange-traded funds (ETFs). On the one hand, the value of existing bonds can go down as rates rise because investors can find competitive rates in U.S. Treasury bills, bonds, and notes that are much safer than bonds. On the other hand, the yield on new bonds starts to rise.
A bond ETF that is in a position to sell some of its existing bonds and buy new ones can produce higher income. (See also: Bond ETFs: A Viable Alternative.)
We have chosen five bond ETFs that have a one-year return above 5%. These funds have managed to weather the transition to a period of rising interest rates so far, and may be in a position to prosper going forward. All figures are current as of February 14, 2017.
iShares Convertible Bond (ICVT)
The benchmark for this fund is the Bloomberg Barclays U.S. Convertible Cash Pay Bond > $250MM Index. While the fund aims to keep a minimum of 90% of its assets in securities from the underlying index, it also invests in futures, options and swaps. It may also invest in other securities that are not in the index. The strategy has paid off for the last year, with a return of over 30%.
- 1 month: +2.54%
- 3 months: +7.50%
- 1 year: +30.45%
- Since inception: +4.66%
WisdomTree Strategic Corporate Bond ETF (CRDT)
This ETF does not follow a specific index. Instead, it invests in corporate debt. That means it buys bonds that corporations issue, and is vulnerable if any of those corporations should default on a bond payment. The fund keeps 80% of its assets invested in corporate debt. It also invests in money market securities, floating rate securities and those that are tied to the inflation rate. It may invest in non-U.S. bonds.
- 1 month: +0.18%
- 3 months: +1.34%
- 1 year: +9.78%
- 3 years: +3.67%
- Since inception: +3.59%
PIMCO Diversified Income Active Exchange-Traded Fund (DI)
DI invests in fixed-income securities. This can mean bonds, but the fund may also invest in futures, options and swap agreements. It may invest in non-U.S. bonds, and it may choose both private sector and public sector investments. The fund varies the maturities on its investments. As little as 65% of assets may be invested at any given time.
- 1 month: +1.04%
- 3 months: +2.83%
- 1 year: +16.30%
- 3 years: +4.60%
- Since inception: +4.64%
AdvisorShares Market Adaptive Unconstrained Income ETF (MAUI)
MAUI's focus is income, with capital preservation as a second concern. This ETF is a fund of funds. That means it invests in other funds, primarily ETFs. It may also invest in closed-end funds, exchange-traded notes (ETNs) and exchange-traded products (ETPs ). It may invest in non-U.S. fixed income instruments as well.
- 1 month: +0.46%
- 3 months: +1.95%
- 1 year: +7.97%
- Since inception: -0.26%
iShares iBonds Dec 2025 Term Corporate ETF (IBDQ)
This fund is benchmarked to the Bloomberg Barclays December 2025 Maturity Corporate Index. The fund invests in corporate bonds. It keeps 90% of its assets in securities from the index. The maturities on its bonds are after December 31, 2024 and before January 1, 2026.
- 1 month: +0.04%
- 3 months: -0.71%
- 1 year: +5.86%
- Since inception: +2.51%
The Bottom Line
Bonds can be confusing when interest rates are rising. By investing in an ETF, you get the wisdom of a money manager to help you. You can trade ETFs quickly like you would with stocks, so if you see results that you don’t like, you can sell your shares easily. Bond ETFs can be an important income component of your portfolio.