Investors should keep in mind that while monthly distributions from bond ETFs are often called «dividends,» interest from
the underlying bond holdings aren't considered qualified dividends, and are taxed as ordinary income.
Fund shares are subject to the same interest rate, inflation and credit risks associated with
the underlying bond holdings.
The return of principal for bond funds and for funds with significant
underlying bond holdings is not guaranteed.
Not exact matches
If the company's
underlying stock decreases in value, an investor can still
hold onto the convertible
bond and receive the
bond's par value at maturity, as long as the issuer does not default.
Bond funds and bond holdings have the same interest rate, inflation and credit risks that are associated with the underlying bonds owned by the fu
Bond funds and
bond holdings have the same interest rate, inflation and credit risks that are associated with the underlying bonds owned by the fu
bond holdings have the same interest rate, inflation and credit risks that are associated with the
underlying bonds owned by the funds.
An ETF
holds assets such as stocks, supplies, or
bonds and trades at approximately the same price as the net asset value of its
underlying assets over the course of the trading day.
Taxation Of Distributions Besides taxes on capital gains incurred from selling shares of ETFs, investors are also subject to pay taxes on periodic distributions, which can be dividends paid out from the
underlying stock
holdings, interest from
bond holdings, return of capital (ROC) or capital gains — which come in two forms: long - term gains and short - term gains.
Because $ TBT is a leveraged inverse ETF, there is a degree of underperformance to the
underlying index (long - term treasury
bonds) as the
holding period increases.
Though the ECB has acknowledged that one of the main factors
underlying the eurozone's stagnation is a lack of credit growth, any potential use of QE seems unlikely to make much of an impact in this regard, even if an announcement of QE could drive yields down further, making it even less attractive for banks to
hold government
bonds.
Hence, for the debt mutual funds, declining
bond prices of
underlying holdings have been impacting the return that is a function of changing
bond price.
If so, it seems that they would have a higher risk profile than buying and
holding the
underlying bonds to maturity.
Convertible arbitrage
holds long positions in convertible
bonds while shorting the stock of the
underlying company.
In a series of posts last month, I looked at ETFs from Horizons and Claymore that use derivatives rather than simply
holding the stocks or
bonds in their
underlying indexes.
Unlike stocks, which represent ownership in the
underlying company, bondholders are creditors of the issuer — meaning that those
holding the
bonds are lending money to the issuer.
If the company's
underlying stock decreases in value, an investor can still
hold onto the convertible
bond and receive the
bond's par value at maturity, as long as the issuer does not default.
And importantly, these
bond funds (and their
underlying bonds) may soon produce negative returns if they are not
held for a sufficient duration.
If you dig deeper you'll also find that XTR
holds only plain - vanilla stock and
bond funds, while ZIM includes some more exotic investments such as floating - rate notes, emerging market
bonds and a couple of ETFs that write call and put options on their
underlying stocks to generate more income.
An ETF's market price can actually be a better approximation of the aggregate value of the
underlying bonds than its own NAV, and highly liquid
bond ETFs can perform price discovery for the
bonds they
hold.
The nice think about
bond ETFs is that they are much more liquid than
holding the
underlying bonds.
Adopting the discipline of rebalancing
bond exposures toward fundamental weights, which are linked to the economic size of the
underlying issuing companies rather than to the amount of debt they have issued, achieves the dual objective of: 1) tilting
holdings toward companies with better debt servicing and higher credit ratings; and 2) taking advantage of mean reversion in securities prices over time.
Because a
bond mutual fund is just a collection of
bonds, at any given time its expected return and risk are exactly equal to those of the
underlying assets it
holds.
Also, if you bought the
underlying and
held them to maturity, then your potfolio would start out with a long duration and grow shorter over time (Unless you keep buying
bonds the same way the mutual fund manager does).
Of course, in the short - term the
bond ETF's price will be volatile because its
underlying holdings will fall in value in the short - term while it waits to accrue its interest income.
The percentages of the Portfolio's assets allocated to each
Underlying Fund are: Vanguard ® Total
Bond Market II Index Fund 60 % Vanguard ® Total International Bond Index Fund 15 % Vanguard ® Institutional Total Stock Market Index Fund 17.5 % Vanguard ® Total International Stock Index Fund 7.5 % Through its ownership of the two bond funds, the Portfolio indirectly holds a mix of bonds — including government, government agency, corporate, securitized non-U.S. investment - grade fixed income investments and international dollar - denominated bonds, as well as mortgage - backed and asset - backed securities — that represents a wide spectrum of public, investment - grade, taxable, fixed income securities in the United States and abroad, all with maturities of more than 1 y
Bond Market II Index Fund 60 % Vanguard ® Total International
Bond Index Fund 15 % Vanguard ® Institutional Total Stock Market Index Fund 17.5 % Vanguard ® Total International Stock Index Fund 7.5 % Through its ownership of the two bond funds, the Portfolio indirectly holds a mix of bonds — including government, government agency, corporate, securitized non-U.S. investment - grade fixed income investments and international dollar - denominated bonds, as well as mortgage - backed and asset - backed securities — that represents a wide spectrum of public, investment - grade, taxable, fixed income securities in the United States and abroad, all with maturities of more than 1 y
Bond Index Fund 15 % Vanguard ® Institutional Total Stock Market Index Fund 17.5 % Vanguard ® Total International Stock Index Fund 7.5 % Through its ownership of the two
bond funds, the Portfolio indirectly holds a mix of bonds — including government, government agency, corporate, securitized non-U.S. investment - grade fixed income investments and international dollar - denominated bonds, as well as mortgage - backed and asset - backed securities — that represents a wide spectrum of public, investment - grade, taxable, fixed income securities in the United States and abroad, all with maturities of more than 1 y
bond funds, the Portfolio indirectly
holds a mix of
bonds — including government, government agency, corporate, securitized non-U.S. investment - grade fixed income investments and international dollar - denominated
bonds, as well as mortgage - backed and asset - backed securities — that represents a wide spectrum of public, investment - grade, taxable, fixed income securities in the United States and abroad, all with maturities of more than 1 year.
Hold Me Tight will help you and your partner identify your patterns of negative interaction — and the
underlying emotions that fuel them — so you can de-escalate the negative spirals that erode the
bond between you.