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Tilt Your Allocation Towards the “TLT” ETF

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After taking Columbus Day off, the bond markets were back in full swing on Tuesday, but the benchmark Treasury notes, other than the 30-year note, were all trading well below 2%. In times of low yields like today’s bond landscape, it can help to tilt your allocation towards fixed income exchange-traded funds like the iShares 20+ Year Treasury Bond ETF (NasdaqGS: TLT).

As for the fund itself, TLT seeks to track the investment results of the ICE U.S. Treasury 20+ Year Bond Index (the “underlying index”). The underlying index measures the performance of public obligations of the U.S. Treasury that have a remaining maturity greater than or equal to twenty years.

“The iShares 20-Plus Year Treasury Bond (TLT) fund is trading just 3% below a year-to-date peak of 148.90. In contrast, the S&P SmallCap 600 is still wallowing 14% below its 2018 high of 1100,” wrote David Saito-Chung in Investor’s Business Daily. “TLT also shows a 17% gain year to date. And don’t forget the 2.2% annualized yield based on share prices at the end of the third quarter.”

“ETFs that focus on U.S. Treasury securities and investment-grade corporate bonds have given income investors comfort and bliss in 2019,” Saito-Chung wrote.

Advantages of adding TLT to your portfolio:

  • Exposure to long-term U.S. Treasury bonds
  • Targeted access to a specific segment of the U.S. Treasury market
  • Use to customize your exposure to Treasuries

The fund carries a paltry expense ratio of just 0.18%, the fund has been returning 18% year-to-date, according to Yahoo Finance performance numbers.

Tilt Your Allocation Towards the “TLT” ETF While Yields Are Low 1

Tilt Your Allocation Towards the “TLT” ETF While Yields Are Low 1

“When you look at yields, sometimes they can be more attractive than short- and intermediate-term bond funds,” said Morningstar’s director of personal finance, Christine Benz. “And long-term bonds also look great, especially long-term government bonds, from the standpoint of diversifying equity exposure in a portfolio. So, if you’re looking for a single category that looks really good from that perspective, long-term government bonds are excellent.”

One thing to remember when investing in long-term bonds is that investors are exposed to duration risk where volatility can arise. Still, funds like TLT can also help counteract volatility within equities as market-moving events unfold.

“The reason we don’t typically recommend them at Morningstar is that they’re just really volatile,” said Benz. “So, as stand-alone investments, they act kind of equity like in terms of their behavior. And that’s not what most investors own bonds for. Most investors own them for that stabilizer role that we talked about.”

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