How to choose an ETC, example 3
31 October 2021
How to choose an ETF, example 1
31 October 2021
In the previous example, you saw how I searched for an ETF that replicated the performance of the S&P 500 index and had all the features I wanted. It was all in all easy and fairly quick even though my search initially yielded a high number of results.
I now want to include in my portfolio an ETF that invests in the long-term (i.e., 10 years or more) with a US bond market that is liquid, on the market for at least 5 years, has no foreign exchange issues, has physical replication, distributes returns and is low cost. I arrange my search by selecting "United States", "Government" and "10+" as the duration.
There are only 8 results, which makes my selection process a lot easier.
Unlike in the previous example, this time I will arrange the ETFs by currency by clicking on "Fund CCY".
There are only three EUR or EUR hedged ETFs.
- iShares USD Treasury Bond 20+yr EUR Hedged UCITS
- Lyxor US Treasury 10+Y (DR) UCITS ETF - Monthly Hedged to EUR - Dist
- UBS ETF (LU) Bloomberg US 10+ Year Treasury Bond UCITS ETF (hedged to EUR) A-dis
All three are not very well-capitalized, the highest being iShares USD Treasury Bond 20+yr EUR Hedged UCITS which is also the ETF my choice falls on. UBS ETF (LU) Bloomberg US 10+ Year Treasury Bond UCITS ETF (hedged to EUR) A-dis in addition to having a low capitalisation also has costs that amount to more than double the other two and Lyxor US Treasury 10+Y (DR) UCITS ETF - Monthly Hedged to EUR - Dist has also results, from previous years, that are underwhelming.
The iShares USD Treasury Bond 20+yr EUR Hedged UCITS ETF has been on the market for less than 5 years, exactly 4 years and 1 month at the moment. Although capitalisation is not large (only 138 mil.) the London Stock Exchange (LSE) listed ETF has high volumes and therefore does not seem to give liquidity problems.
As with the previous example, by clicking on the name you can see all the features such as the list of all the bonds that make up the ETF and their weight within the basket. You can also download the fact sheet and the KIID. Alternatively, as mentioned above, just do a Google search of the name of the ETF and then go and see the characteristics directly on the site of the issuing company.
So, you've seen how I chose an ETF on the US bond that respected my investment idea as much as possible. There will not always be an ETF or ETC that will have all the characteristics you are looking for. In that case, you either accept the closest one that has at least all the most important qualities, or you change investment type (and ETF).
I now want to include in my portfolio an ETF that invests in the long-term US bond market and which has all the characteristics I want. I set up my search by selecting
I am a macroeconomic and financial analyst with over 30 years’ experience, including two years as a fund manager. I specialise in currencies and commodities, and I am the author of several successful books on trading, macroeconomics, and financial markets.
