3 Passive Funds for Fixed Income

A raft of tracker funds are available for fixed income investors looking for a simple solution. We look at some options

Jose Garcia Zarate 5 October, 2020 | 11:25AM
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3 passive funds

Whenever we talk about passive funds, and particularly ETFs with their stock-like characteristics, there is a tendency to think about funds that provide access to equity markets. However, one of the fastest-growing segments of the passive industry in the last couple of years has been that of funds offering exposure to the vast array of bond markets. Investors can also benefit from the compounding benefits of the low fees associated with passive funds when thinking about their asset allocation needs in fixed income. Here I outline three interesting options covering a variety of bond markets.

iShares Core UK Gilts ETF

Exposure to government bonds is the core building block of the fixed income portion of a portfolio. Bonds issued by the UK government, commonly known as gilts, fulfil the basic task of providing a counterweight to more volatile equity holdings. The iShares Core UK Gilts ETF is a small and liquid bond market where the opportunities for active managers to add meaningful value are limited. Besides, this is a holding for the long-term, and so the compounding benefits of low management fees trump any other considerations, thus making passive funds the default option.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Jose Garcia Zarate

Jose Garcia Zarate  is Associate Director of Passive Strategies Research for Morningstar Europe