I am considering putting a % of my savings into Bond ETFs. EU investor, so looking at accumulating ETFs, I have narrowed down my options to:
| Bond | TER | 5y cumulative return |
|---|---|---|
| iShares € Govt Bond 1-3yr UCITS ETF EUR (Acc) | 0.2% | 4.73% |
| iShares € Govt Bond 3-7yr UCITS ETF | 0.2% | 15.38% |
| iShares € Govt Bond 7-10yr UCITS ETF EUR (Acc) | 0.2% | 29.28% |
The names are deceivingly similar: The first ETF only contains bonds from Italy and Spain (100% BBB rated), while the second two also have exposure to Germany, France, and the Netherlands (25-30% AAA rating, 25-30% AA rating, 40-50% BBB rating).
Stupid questions of the day:
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Is the huge discrepancy in yields due to the falling interest rates in the Euro-zone?
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Assuming interest rates will increase to, say, 1-2% in the next 10 years, should I expect shorter-maturity bond ETFs to perform better, all other things being equal?
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What other risk factors besides interest rates can conceivably affect bonds differentially based on their maturity? For the sake of this question, let's compare the 3-7yr and 7-10yr ETFs, which have a very similar composition from the point of view of countries represented.
Currently the money is sitting in a deposit account which yields 0.85% after taxes. Over 5 years, the expected return is (1.0085)5 = 4.3%. Do you think it would be a bad idea to move a chunk of my money into longer-maturity bond ETFs, assuming the interest rate will not stay at 0% forever? I am already investing a portion of my savings in iShares Core MSCI World UCITS ETF and running a DIY DCA investment plan which would see me invested 60-30-10 in about 18 months from now, if I decide to put some money into bond ETFs, or maybe 70-0-30 if I decide that the future looks bleak for bonds right now.
Submitted December 14, 2017 at 10:48AM by lulzoiaf http://ift.tt/2C76LHJ
