4 ETFs That Leave Bonds in the Dust

Focus: ETFs

It's a good time to find solid stock exchange traded funds that have bond-beating income and a lot of appreciation potential to boot, observes Martin Hutchinson of Permanent Wealth Investor.

It's a good rule of thumb: when stocks yield more than bonds, stocks are the better buy because of the potential for growth.

Believe it or not, before the financial crisis in 2008 that was hardly the case. Going all the way back to 1958, bond yields always outpaced those of stocks.

But thanks to Ben Bernanke and friends, bond yields have been driven into the basement. What's more, the central banks of the world are doing everything in the power to keep them there.

That's why investors are increasingly turning to exchange traded funds that specialize in dividend stocks as vehicles for income. This makes good sense for a couple of reasons. First, bond markets aren't very transparent, which makes bond prices difficult to come by, so ordinary investors get ripped off if they buy corporate bonds directly.

Second, in today's markets you will do better in a high-dividend stock ETF—especially one with an international portfolio—than you will in a bond ETF. Let me show you why that is...

Stock ETFs vs Bond ETFs
To see why stock ETFs are a better deal than bond ETFs, let's run through the five bond offerings of iShares, one of the largest and most solid creators of ETFs:

  • Aggregate Bond Fund (AGG): Buys investment-grade corporate, Treasury, and agency bonds, mostly AAA-rated, with an average maturity of 6.2 years.