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ETF Specialist

Cheap Exposure to the Universal Bond Index

This ETF can offer greater yield and Morningstar Risk-Adjusted Returns than traditional aggregate index ETFs.

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With yields at all-time lows, many income-seeking investors have been chasing yield, investing in everything from high-yield corporate bonds to high-quality dividend-paying stocks. However, chasing yield can often lead to increased volatility, increased probability of permanent capital loss, and returns that are more correlated to stocks. Said another way, when chasing yield, fixed-income investors often face disappointing and costly consequences.

IShares Core Total U.S. Dollar Bond Market (IUSB) can offer a slightly higher yield while still providing correlated returns to the high-quality bond-oriented Barclays U.S. Aggregate Bond Index. IUSB tracks the Barclays U.S. Universal Bond Index, an index that includes all of the constituents in the Barclays U.S. Aggregate Bond Index plus higher-yielding assets, such as high-yield corporate bonds, and eurodollar, emerging-markets (U.S. dollar and U.S. listed) bonds, 144A securities, as well as a broader swath of commercial mortgage-backed bonds excluded from the Aggregate Index. The Aggregate Index comprises 84% of the Universal Index’s market cap, and by extending that reach across a wider range of bond sectors, the fund may be used as a core holding to get exposure to the U.S. fixed-income market.

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Thomas Boccellari does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.