BIV - BIV: A Time To Finally Allocate

2023-11-02 17:41:06 ET

Summary

• Investing in bond ETFs has been challenging, but that may change as bonds become a great diversifier.
• Vanguard Intermediate-Term Bond Index Fund ETF Shares is worth considering, as it tracks the performance of the Bloomberg U.S. 5-10 Year Government/Credit Float Adjusted Index.
• The BIV ETF has a large portfolio, low expense ratio, and potential for a steady income and capital appreciation in a stabilizing or decreasing interest rate environment.

Investing in bond exchange-traded funds, or ETFs, has been brutal for the last two years, but that might be about to change. Bonds might now be a great diversifier. One ETF that deserves your attention is the Vanguard Intermediate-Term Bond Index Fund ETF Shares ( BIV ). This ETF aims to track the performance of the Bloomberg U.S. 5–10 Year Government/Credit Float Adjusted Index and provides diversified exposure to the intermediate-term, investment-grade U.S. bond market.

Understanding BIV: A Brief Overview

BIV is an ETF managed by Vanguard, one of the world's leading investment management companies. This fund seeks to replicate the investment return of the Bloomberg U.S. 5-10 Year Government/Credit Float Adjusted Index. This index is a market-weighted bond index encompassing investment-grade bonds with a dollar-weighted average maturity of 5–10 years. The fund invests in investment-grade debt securities that include government, corporate, and international dollar-denominated bonds with maturities between 5–10 years, which are rated BBB- or above by S&P.

BIV is a large ETF with assets under management of more than $35 billion, and it has a low expense ratio of just four basis points. The fund offers a current yield to maturity of 5.2%. This yield is in line with what you would expect based on the shape of the Treasury yield curve and with corporate bond credit spreads being modest.

BIV's Portfolio Breakdown

BIV's portfolio contains over 2000 individual securities, with an average effective maturity of 7.2 years. BIV is composed of 56% U.S. government bills, notes, and bonds, while the corporate component is on the lower end of high-grade quality.

Market Sentiment and Economic Factors

With the Federal Reserve indicating that it may be done with its interest rate hikes, this could be a favorable time to consider investing in BIV. The bond market has been under pressure due to rising interest rates, but with the Fed's policy shift, bond prices may stabilize, benefiting funds like BIV.

What about relative to the S&P 500 Index (SP500)? Well, what if I told you we are now at a point in the cycle where bonds actually outperform stocks? This ratio looks like it's at a low. And may finally be trending higher.

Risks and Opportunities

Investing in BIV, like any other investment, comes with certain risks. These include interest rate risk, credit risk, and inflation risk. However, the fund's high credit quality and diversified portfolio help mitigate these risks. Moreover, BIV offers opportunities for steady income and potential capital appreciation, especially in an environment where interest rates are stabilizing or decreasing.

Conclusion: Is BIV a Good Investment?

Given its features and current market conditions, BIV could be a worthy addition to your investment portfolio. It offers a balance of steady income and potential capital appreciation, while its low expense ratio and high asset under management underscore its efficiency and stability. If we enter a recession, a bond fund like this can do well.

Bonds aren't dead. If anything, they might be just about to rise.

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