Best Treasury ETFs for Q4 2022
Treasury exchange-traded funds (ETFs) enable investors to gain exposure to the U.S. government bond market through 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 Dec. 1, 2021, the 10-year Treasury yield was 1.43%, while it was 0.95% on Dec. 2, 2020. Yields have risen, especially since the start of this year, as the economy continues to recover from the impact of the COVID-19 pandemic. The price of Treasury securities and their yield move in opposite directions, so rising yields mean falling prices and vice versa.
- Treasurys have significantly underperformed the broader market over the past year.
- Treasury exchange-traded funds (ETFs) with the best one-year trailing total returns are LTPZ, SPIP, and GTIP.
- The top holdings of these ETFS are TIPS, which offer protection against the erosion of purchasing power due to inflation.
There are 46 distinct U.S. Treasury ETFs that trade in the United States, excluding inverse and leveraged ETFs as well as funds with less than $50 million in assets under management (AUM). This list contains all U.S. Treasury ETFs, including Treasury Inflation-Protected Securities ETFs (TIPS ETFs).
Treasurys, as measured by the Bloomberg U.S. Treasury Index, have significantly underperformed the broader market, providing a total return of -2.1% over the past 12 months compared to the S&P 500’s total return of 27.9%, as of Nov. 30, 2021. The best Treasury ETF, based on performance over the past year, is the PIMCO 15+ Year US TIPS Index ETF (LTPZ).
We examine the three best Treasury ETFs below. All three are Treasury inflation-protected securities (TIPS), a type of Treasury security that is indexed to inflation in order to protect investors from a decline in the purchasing power of their money. Investors have flocked to TIPS this year amid concerns over rising inflation. Thus, the best Treasury ETFs for Q1 2022 are also the best TIPS ETFs. All numbers are as of Nov. 30, 2021.
- Performance Over One-Year: 8.4%
- Expense Ratio: 0.20%
- Annual Dividend Yield: 3.22%
- Three-Month Average Daily Volume: 135,000
- Assets Under Management: $954.9 million
- Inception Date: Sept. 3, 2009
- Issuer: Allianz Investment Management LLC
LTPZ seeks to track the ICE BofA Merrill Lynch 15+ Year US Inflation-Linked Treasury Index, which is comprised of TIPS with maturities that are 15 years or greater. The ETF aims to help investors preserve the purchasing power of their money against inflation while also offering low default risk. The longer maturity of the securities held means there is greater potential for higher returns than a fund comprised of lower-maturity securities, but it also increases risk due to greater exposure to changes in interest rates. Its top three holdings are three different sets of TIPS maturing in 2044, 2041, and 2042, respectively.
- Performance Over One-Year: 6.8%
- Expense Ratio: 0.12%
- Annual Dividend Yield: 4.18%
- Three-Month Average Daily Volume: 1,254,632
- Assets Under Management: $3.5 billion
- Inception Date: May 25, 2007
- Issuer: State Street
SPIP aims to track the performance of the Bloomberg U.S. Government Inflation-Linked Bond Index, which is comprised of TIPS having at least 1 year remaining to maturity on the index’s rebalancing date and the size of the issue must be for an amount equal to or greater than $500 million. The ETF is designed to offer a competitively priced option for investors to protect their wealth against the corrosive effects of inflation. The average maturity of the securities that comprise the fund is approximately 8.8 years. The fund’s top three holdings are three different sets of TIPS maturing in 2026, 2023, and 2024, respectively.
- Performance Over One-Year: 6.8%
- Expense Ratio: 0.12%
- Annual Dividend Yield: 3.46%
- Three-Month Average Daily Volume: 30,189
- Assets Under Management: $190.5 million
- Inception Date: Oct. 2, 2018
- Issuer: Goldman Sachs
GTIP seeks to track the performance of the FTSE Goldman Sachs Treasury Inflation Protected USD Bond Index, which provides exposure to TIPS meeting certain liquidity and seasoning criteria. The ETF employs a strategy of investing in so-called “off-the-run” securities, which tend to be traded less than newer issued “on-the-run” securities. The lower demand for the less-traded, “off-the-run” securities tends to make them cheaper than their “on-the-run” counterparts. Like the other two funds above, GTIP is comprised of TIPS, thus offering investors a way to protect against the erosion of purchasing power due to inflation. Its top three holdings are three different sets of TIPS maturing in 2028, 2027, and 2025, respectively.
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