Bonds can provide safe, stable, predictable returns and have low correlation with stock yields, making them suitable for combining with high-risk stocks to form investment portfolios. Since 2018, the stock market has fluctuated and downward, and the hedging function of bond assets has been outstanding. However, it is very difficult for ordinary investors to invest in a single bond. First of all, buying and selling bonds are generally in over-the-counter trading (OTC), and the market transparency is low, so there is no unified trading price, and the quotes of different brokers for the same bond may vary greatly. Secondly, bonds are low in liquidity because not all bonds have trading hours every day, and some products are traded weekly or even monthly, and during a period of market downturn, some bonds even cease to trade altogether. Finally, the entry threshold for each bond is high. Ordinary investors may buy one or two corporate bond products and have already lost their positions, which is tantamount to putting all the eggs in one basket. , bond ETFs can optimize and solve these problems and become a better investment tool for small and medium-sized investors.
What is a bond ETF
Bond Exchange Trading Fund (referred to as "bond ETF") is a packaged investment tool for bonds. It is a trading securities investment fund that uses bond indexes as the target and attempts to copy its yield. Although bond ETFs only contain bonds, they are traded on exchanges like stocks and have the characteristics of partial equity securities. Investors can subscribe and redeem in the primary market of , or buy and sell bond ETF shares in the secondary market. By investing in bond ETFs, investors can easily achieve investment in a package of bonds. Taking the Treasury Bond ETF as an example, its tracking index is the Shanghai Stock Exchange 5-year Treasury Bond Index. Investing in the Treasury Bond ETF is equivalent to purchasing a package of Treasury Bond portfolios with a duration of about 5 years. By investing in Treasury bond ETFs, investors can easily and stably enjoy the yield of 5-year Treasury bonds.
Compared with ordinary bonds, bond ETFs have the following three characteristics:
passively operated index fund: bond ETF takes copying and tracking a selected target bond index as its investment goal. According to the component bonds that constitute the index and their components, a specific copying method is adopted to track the performance of the target index, and pursues the minimization of tracking error and deviation.
Unique physical subscription and redemption mechanism: The so-called physical subscription and redemption mechanism refers to when investors subscribe to ETFs from a fund management company, they need to exchange a basket of bonds designated by the ETF; what they get when redeeming is not cash, but a corresponding basket of bonds; if they want to cash, they need to sell these bonds again. In addition, ETFs have the "minimum subscription and redemption share" regulations, and only investors with large amounts of funds can participate in the "physical subscription and redemption" of the ETF primary market.
implements a trading system that coexists with the primary and secondary markets : In the primary market, large investors can use bonds to exchange shares (subscription) and exchange shares to exchange bonds (redemption). In the secondary market, ETFs are listed and traded in the market like ordinary exchange bonds. Whether investors with large amounts of funds or small and medium-sized investors can trade ETF shares at market prices. The existence of the primary market makes it impossible for the transaction price of the secondary market to seriously deviate from the net value of the fund shares , otherwise arbitrage transactions between the two markets will occur, causing the secondary market price to restore to the near the net value of the fund shares. Therefore, under normal circumstances, the trading price of the secondary market of ETFs is always close to the net value of the fund shares. Advantages and shortcomings of
Bond ETF
Bond ETF has unique advantages compared to ordinary bonds:
Decentralized investment: Bond ETF uses the index copy method to achieve effective tracking of the target index, with the minimum tracking error as the investment goal. The component bonds of the underlying index have obvious quantitative advantages compared with single bonds, are less sensitive to single emergencies, and are relatively less non-systemic risks. The diversified investment of bond ETFs can meet the management needs of investors in major asset allocation and risk exposure management, and optimize the risk and return of the overall investment portfolio.
trading is convenient and easy to understand: individual bond products do not have trading hours every day, but through ETFs, investors can buy or sell at any time in five trading days a week, and avoid the complex procedures of bond trading in the OTC market. They only need a mobile phone to trade; investors only need to observe the performance of the target index to understand the performance of bond ETFs.
Management fees are low: The management fee rate of my country's first bond ETF is 0.3%, which is not only lower than the average fee level of all active public bond funds, but also lower than the 0.5% fee level of general stock ETFs, and even lower than the 0.33% fee level of general money market funds.
High transparency: investors can simply and clearly understand the risk-return characteristics of the underlying assets and components of bond ETFs, and grasp the risk-return characteristics of bond ETFs; at the same time, the characteristics of bond ETFs listed and traded greatly increase the exposure of information. Their prices are updated every 15 seconds, and are displayed on the exchange quotation platform in real prices, and will not be "opening prices" by counterparties.
Returns are relatively stable: historical data shows that most active fund managers find it difficult to defeat the market in the long run. Investing in bond ETFs reduces the uncertain risk of lower than expected returns caused by poor management of fund managers, and provides relatively long-term, stable and predictable returns.
has the function of creating liquidity: Primary market investors can use a package of coupons to subscribe to ETF shares or use ETF shares to redeem a package of coupons, increase the trading demand for a package of coupons and improve their liquidity. Bond ETFs with sufficient trading volume have some functions as market makers that will increase the trading motivation of many inactive bonds and drive the turnover rate and trading volume of high-yield bonds and long-term bonds with poor liquidity.
is convenient for small investors to invest: The trading unit of bonds on the Shanghai Stock Exchange is 1 lot, with a face value of 1,000 yuan per lot, so it takes at least 10,000 yuan to buy 10 bonds. If you purchase ETF index funds, it is equivalent to purchasing all bonds with the amount of funds that can only buy 10 bonds, lowering the threshold for investors.
tool attributes are stronger: bond ETF is a passive product and is suitable for band operations. The main shortcoming of
Bond ETF is the uncertainty of principal return: bond ETF will not mature, it will not guarantee the return of maturing Japanese gold like ordinary bonds. If the interest rate rises, investors will suffer losses. Changes in interest rates will have a great impact on the value of bonds. Ordinary bond investors can reduce the losses caused by rising interest rates by holding the bonds in their hands until the maturity date. Bond ETFs do not have maturity dates, so there are not many ways to deal with the losses caused by rising interest rates.
Risk warning: This information is for reference only and does not constitute promotional materials, investment advice or guarantee for any of our business, and is not used as any legal document. Fund manager promises to manage and use fund assets with the principles of honesty, trustworthiness, diligence and conscientiousness, but does not guarantee the fund's profits or the minimum return. When purchasing a fund, investors should read the fund contract and prospectus and other legal documents of the fund in detail to understand the specific situation of the fund. The performance of other funds managed by the fund manager and the past performance achieved by their investment personnel do not indicate their future performance, nor does it constitute a guarantee of the performance of this fund. Fund investments should be cautious.
