Exchange-Traded Funds

Handpicked Selection of Best Bond ETFs

The Definitive Guide to Bond Index Investing - Best ETFs

This is the ETF selection part of our definitive guide to Bond Index Investing.

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Let’s dive into the Best Bond ETFs.

KEY TAKEAWAYS

We selected the Best UCITS ETFs from reputable Asset Managers, large enough to reduce closure risk, with established track record, liquid, cheap and widely available.
The Best Global Bond Government ETF is xxx.
The Best Global Aggregate Bond ETF is xxxx
The Best European Government Bond ETF is xxx
The Best European Aggregate Bond ETFs is xxx.
The Best UK Government Bond ETFs is xxxx.
The Best Short-Term Government Bond ETF is xxxx
The Best Short-Term Investment Grade Bond ETFs is xxxx

Here is the full analysis

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How we rank ETFs

Our Selection Criteria

Our 5 Key Criteria take a Long-Term Investor’s Perspective:

Reputable – Only Established Asset Managers with a preference for Tier 1 players like BlackRock (iShares), Vanguard and State Street (SPDR). Strong performance from local players, including DWS (Xtrackers), Amundi (and Lyxor) or HSBC, justifies consideration.
Large – A minimum Fund size $200m (unless justified) to reduce the commercial risk of ETF closure. We combine distributing and accumulating share classes.
Established – Unless justified, a 3-year ETF Performance track record is required.
Cheap – Tracking Difference is a comprehensive backwards-looking measure. A positive 3-Year Tracking Difference below, from Institutional Data sources, including Bloomberg, reflects outperformance against Net Tax Index. In practice, this outperformance is lower as the most punitive tax treatment is applied to benchmarks, but it helps in the relative ranking of ETFs. TER is a forward-looking measure, but less comprehensive.
Available and Liquid – All ETFs should be available from some of the most used brokers like Interactive Brokers or DEGIRO. We also monitor industry flows to give preference to funds with high daily volumes.

These five criteria are supplemented by other asset-class-specific criteria, as explained in related sections. We also refer to comprehensive guides for each asset class.

Our Prioritisation

The below tables list the Top 3-5 Funds. Our prioritisation is based on Portfolio Management experience and is a balancing act between the above overarching and asset-specific criteria. For example, we may override marginal Tracking Difference outperformance with reputation or liquidity considerations.

For instance, we prefer the iShares MSCI World UCITS ETF to the marginally better-performing competitors due to brand, higher liquidity, and the fund being the reference name in its asset class.

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How much money do I need to retire with higher inflation?
Medium Term or Long Term Bonds with today’s yields?
Risks and Returns of Money Market Funds
Asset Allocation for 10-15 year goals with narrowing returns between Equities & Bonds
Merits of UK Trusts that invest in unlisted companies
Traps with choosing brokers – PFOF & Risks of moving to another country
International Situations – Choosing ETFs when leaving Europe

GLOBAL ETFs

Asset Class Criteria

Aligned with Market Practice – Unhedged Currency.
Tax efficient – Irish Domiciled ETFs reduce US Companies’ Dividend Tax from 30% to 15%.
Simple – For Global exposure, Investors choose physical replication.

Read our dedicated review of all Global ETFs, including UK and US specific.

Global ETF SELECTION

Rank	Global(World) ETF	3Y TD	TER	Acc.	Dist.	Replication	Size	Inception	Domicile	Benchmark	Acc ISIN	Dist ISIN	Rank Category
1	Vanguard FTSE ALL-World UCITS ETF	0.0%	0.22%	✓	✓	Physical	13.9	05/2012	Ireland	FTSE All World Net Total Return Index	IE00BK5BQT80	IE00B3RBWM25	Large & Mid Caps
2	iShares MSCI ACWI UCITS ETF	-0.1%	0.20%	✓	✘	Physical	6.3	10/2011	Ireland	MSCI All Country World Net Total Return Index	IE00B6R52259	✘	Large & Mid Caps
3	SPDR MSCI ACWI IMI ETF UCITS ETF	0.1%	0.17%	✓	✘	Physical	0.5	05/2011	Ireland	MSCI ACWI IMI Net Total Return Index	IE00B3YLTY66	✘	With Small Caps

Source: Bloomberg, Bankeronwheels.com. Data as of February 2023. Definitions: 3Y TD - Annualised 3-year Tracking Difference. It is the ETF outperformance vs. a Total Return Net Index. Net Index represents the worst case tax treatment e.g. 30% for US Dividends. TER - Total Expense Ratio. Acc - Accumulating Share Class. Dist. - Distributing Share Class. Acc/Dist Cumulative size in € billion .

Best Global ETF

Vanguard FTSE All-World UCITS ETF

Vanguard FTSE All-World UCITS ETF has a marginal diversification edge, provides the option of a distributing share class, and is the largest fund in its category. Additionally, it has the highest Tracking Difference and the second-lowest TER.

Best Alternative

iShares MSCI ACWI UCITS ETF

The iShares MSCI ACWI UCITS ETF is leading in TER. BlackRock also has the strongest Brand Name among Institutional Investors and the biggest Asset Manager in the World in terms of Assets Under management. Up until 2021, this ETF was the most expensive in terms of TER and didn’t rank that well in terms of Tracking Difference. As of February 2021, the TER decreased from 0.6% to 0.2%. This change is expected to bring Tracking Difference on par with Vanguard.

State Street provides the option of investing in World’s small caps through the SPDR MSCI ACWI IMI UCITS ETF. In Q1 2023, the TER has been lowered from 0.4% to 0.17%. But, you will rely on a correct sampling. SPDR also has an MSCI ACWI ETF, not tracking small caps, but it is much smaller than rivals and has a worse TD.

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Next Steps

Not sure which Index to choose? This ETF selection results from our deep dives into different asset classes. Start by having a look at the sections of our definitive guide to Equity Index Investing.