Treasury exchange-traded funds (ETFs) provide investors with a way to gain exposure to the U.S. government bond market through investing in a stock-like instrument. Unlike individual bonds that are sold by bond brokers, bond ETFs trade on market exchanges. Treasury ETFs offer investors a way to gain passive, and often broad, exposure to U.S. Treasury bonds. They are composed of a basket of Treasury securities, typically with a focus on a particular maturity or range of maturities. On February 26, 2021, the 10-year Treasury yield was 1.44%, while it was 1.33% on February 26, 2020. In between, yields declined substantially in 2020 to multiple record lows before rising at the end of 2020 and especially sharply in February of 2021. The price of Treasury securities and their yield move in opposite directions, so rising yields mean dropping prices and vice versa.
- Treasurys have significantly underperformed the broader market over the past year.
- The Treasury ETFs with the best 1-year trailing total return are IEI, SCHR, and SPTI.
- All three of these ETFs are composed largely of intermediate-term U.S. Treasury securities.
There are 27 distinct Treasury ETFs, excluding inverse and leveraged ETFs that trade in the U.S. and as funds with less than $50 million in assets under management (AUM). Treasurys, as measured by the Bloomberg Barclays U.S. Treasury Index, have significantly underperformed the broader market. The Bloomberg index posted a total return of 1.0% over the past 12 months compared to the S&P 500's total return of 24.5%, as of February 26, 2021. The best Treasury ETF based on performance over the past year is the iShares 3-7 Year Treasury Bond ETF (IEI). We examine the top 3 best Treasury ETFs below. All numbers below are as of March 1, 2021.
- Performance over 1-Year: 2.4%
- Expense Ratio: 0.15%
- Annual Dividend Yield: 1.06%
- 3-Month Average Daily Volume: 968,378
- Assets Under Management: $11.1 billion
- Inception Date: January 11, 2007
- Issuer: iShares
IEI tracks the IDC US Treasury 3-7 Year Index. The index is composed of U.S. Treasurys with remaining maturities of three to seven years. The fund is a relatively low-risk way of controlling fixed income exposure in the area of intermediate-term Treasurys. IEI holds about 75 different Treasurys, with the top 10 holdings accounting for close to two thirds of invested assets.
- Performance over 1-Year: 2.2%
- Expense Ratio: 0.05%
- Annual Dividend Yield: 1.55%
- 3-Month Average Daily Volume: 667,921
- Assets Under Management: $4.0 billion
- Inception Date: August 5, 2010
- Issuer: Charles Schwab
Like IEI above, SCHR focuses on intermediate-term Treasurys. The fund tracks the Bloomberg Barclays US Treasury 3-10 Year Index, an index of U.S. Treasurys with remaining maturities of three to 10 years. Also similarly to IEI, SCHR may appeal to investors looking for relatively low-risk fixed income exposure. The fund is low cost compared to many similar ETFs, and may offer tax-efficiencies for investors.
- Performance over 1-Year: 2.2%
- Expense Ratio: 0.06%
- Annual Dividend Yield: 0.67%
- 3-Month Average Daily Volume: 733,233
- Assets Under Management: $2.6 billion
- Inception Date: May 23, 2007
- Issuer: State Street SPDR
SPTI, like the two ETFs above, also offers exposure to intermediate-term Treasurys. The fund tracks the Bloomberg Barclays 3-10 Year U.S. Treasury Index, which measures the performance of Treasurys with a remaining maturity of three to 10 years. Like the other ETFs in our list, SPTI may appeal to investors who are reluctant to invest in longer-term Treasurys due to risks of price sensitivity and interest rate shifts.
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