We highlight three long-term bond ETFs with the best performance through December 31, 2021. Learn more about the ETFs' returns, expenses, holdings, and quant ratings.
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What Are Long-Term Bond ETFs & How Do They Work?
A long-term bond ETF is an exchange-traded fund that invests in long-term bonds, which are fixed-income securities with maturities longer than 10 years. These bond ETFs may be actively-managed or they may seek to passively track the performance of a long-term bond index, such as the Bloomberg US 10+ Year Corporate Index.
Other than maturity, such as short-term, intermediate-term, and long-term, the types of bond ETFs are as varied as different types of bonds, including municipal bonds, U.S. Treasury bonds, corporate bonds, agency bonds, zero-coupon bonds and convertible bonds. Bond ETFs may also be further classified by a specific fixed-income objective, such as high yield or inflation protection.
Investors may hold a bond ETF for several reasons, such as a source of interest income, or diversification of an investment portfolio that may include other assets, such as stocks and mutual funds. Some investors choose to hold long-term bond ETFs when interest rates are expected to decline. This is because bond prices generally have an inverse relationship with interest rates, so when rates fall the value of bonds with longer maturities or durations will increase proportionally more than bonds with shorter maturities, assuming all else equal.
Important: A bond's duration is often confused with its maturity. Duration is a measure of a bond's price sensitivity to interest rates, whereas a bond's maturity is a measure of years until a bond matures, or when its principal is due. While both measures are related, in that a bond's sensitivity to interest rates is correlated to its maturity, the measures are not identical. A long-term bond ETF's duration is the weighted average duration of individual bonds held in the portfolio.
Evaluating a Long-Term Bond ETF
The process of choosing the best long-term bond ETFs can be started by narrowing down the choices with an ETF screener. To use the Seeking Alpha screener, an investor can begin with the "Taxable Bond" asset class, then select "Long-Term Bond" or "Long Government" for the sub-class.
The selection criteria used for choosing the top long term bond ETFs are:
- Performance: 1-year return is the primary selection criteria for evaluating performance on our list of long-term bond ETFs. However, investors may review longer periods, such as 3-, 5-, and 10-year returns before selecting an ETF for their portfolio.
- Expenses: When ETFs track the same index or commodity, the one with the lowest expense ratio will generally outperform those with higher expenses. Thus, low expenses are an important factor for future ETF performance.
- Structure: Most ETFs are open-end funds, as opposed to closed-end funds, or CEFs. An ETF structure can be a grantor trust, a limited partnership, or an ETN. Our list of ETFs does not include ETNs.
- Objective: To make the list below, only ETFs that primarily hold bonds with durations of more than 10 years were considered. The ETFs may be actively or passively managed. Alternative objectives and strategies, such as inverse ETFs and leveraged ETFs were ignored for this list.
- Portfolio Holdings: Long-term bond ETFs typically hold bonds with durations more than ten years. However, these ETFs may hold bonds in a range of bond sub-classes, such as government bonds, municipal bonds, corporate bonds, or bonds that vary in credit quality.
- Quant Ratings and Factor Grades: Seeking Alpha’s Quant Ratings and Factor Grades can be used for evaluating stocks or ETFs. In this article, we provide Factor Grades, which rate ETFs by five "factors" - Momentum, Expenses, Dividends, Risk, and Asset Flows. To do this, we compare the relevant metrics for the factor in question for the ETF to the same metrics for the other ETFs in its asset class. The factor is then assigned a grade, from A+ to F.
3 Best Long-Term Bond ETFs by Market Performance
| ETF | 1-Year Performance |
| Invesco Taxable Municipal Bond ETF | 0.70% |
| Vanguard Long-Term Corporate Bond ETF | -1.68% |
| iShares 10+ Year Investment Grade Corporate Bond ETF | -1.69% |
1. Invesco Taxable Municipal Bond ETF
Invesco Taxable Municipal Bond ETF (BAB) is an exchange-traded fund that holds a diversified blend of municipal bonds, most of which have maturities greater than 10 years. BAB is passively-managed, although the ETF is not required to hold 100% of the securities in the benchmark index, the ICE BofAML US Taxable Municipal Securities Plus Index.
- As of date: December 31, 2021
- 1-year performance (price): 0.70%
- Expense Ratio: 0.28%, or $28 annually for every $10,000 invested
- 30-Day SEC Yield: 2.21
- Average Daily Volume: 290,325
Invesco Taxable Municipal Bond ETF Performance
| 1-Yr Return | 3-Yr Return | 5-Yr Return | 10-Yr Return | |
| Invesco Taxable Municipal Bond ETF | 0.70% | 6.89% | 6.24% | 3.88% |
| ICE BofAML US Taxable Municipal Securities Plus Index | -0.95% | 7.50% | 5.28% | 4.76% |
| Bloomberg US Aggregate Bond Index | -1.54% | 4.79% | 3.57% | 2.90% |
Invesco Taxable Municipal Bond ETF significantly outperformed the ICE BofAML US Taxable Municipal Securities Plus Index for the trailing 1-year return, as well as the US Aggregate Bond Index, as of December 31, 2021.
The fund's outperformance of the benchmark index can be primarily attributed to the fact that this ETF is not required to hold 100% of the securities in the benchmark. The outperformance of the Aggregate Bond index over the past year is partly attributed to the ETF's concentration on municipal bonds, which outperformed corporate bonds and Treasuries in 2021.
A $10,000 investment in BAB, made 1 year and 3 years ago, would be worth (as of December 31, 2021):
- 1 year ago: $10,070
- 3 years ago: $12,212
BAB Structure, Objective, and Holdings
- Inception Date: 11/18/2009
- Issuer: Invesco
- Ticker: BAB
- Primary Exchange: NYSE Arca
- Structure: Open-End Fund
- Objective: The Index is designed to track the performance of US dollar-denominated taxable municipal debt in the US market
- Holdings: Invests primarily in long-term US municipal bonds. The total number of holdings for BAB is 657
Invesco Taxable Municipal Bond ETF Seeking Alpha Quant Ratings
| Momentum | Expenses | Dividends | Risk | Asset Flows |
| C- | C+ | C | B- | C- |
2. Vanguard Long-Term Corporate Bond ETF
Vanguard Long-Term Corporate Bond ETF (VCLT) is an exchange-traded fund that seeks to passively track the performance of Bloomberg US Corporate 10+ Year Index by using a representative sampling technique. This index includes U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities issued by U.S. and non-U.S. industrial, utility, and financial companies, with maturities greater than 10 years.
- As of date: December 31, 2021
- 1-year Performance (price): -1.68%
- Expense Ratio: 0.04%, or $4 annually for every $10,000 invested
- 30-Day SEC Yield: 3.32
- Average Daily Volume: 1,156,711
Vanguard Long-Term Corporate Bond ETF Performance
| 1-Yr Return | 3-Yr Return | 5-Yr Return | 10-Yr Return | |
| Vanguard Long-Term Corporate Bond ETF | -1.68% | 11.32% | 7.47% | 6.32% |
| Bloomberg US Corporate 10+ Year Index | -1.13% | 11.75% | 7.73% | 6.54% |
| Bloomberg US Aggregate Bond Index | -1.54% | 4.79% | 3.57% | 2.90% |
Vanguard Long-Term Corporate Bond ETF outperformed the Bloomberg US Corporate 10+ Year Index for the trailing 1-year return, but slightly lagged the US Aggregate Bond Index, as of December 31, 2021.
VCLT's outperformance of the benchmark index can be primarily attributed to the fact that this ETF is not required to hold 100% of the securities in the benchmark. It lagged the Aggregate Bond index because long-term bonds generally performed below short- and intermediate-term bonds, which are included in the Aggregate Bond index.
A $10,000 investment in VCLT, made 1 year and 3 years ago, would be worth (as of December 31, 2021):
- 1 year ago: $9,832
- 3 years ago: $13,795
VCLT Structure, Objective, and Holdings
- Inception Date: 11/19/2009
- Issuer: Vanguard Investments
- Ticker: VCLT
- Primary Exchange: NASDAQ
- Structure: Open-End Fund
- Objective: Seeks to provide a high and sustainable level of current income
- Holdings: Invests primarily in high-quality and investment-grade corporate bonds with maturities ranging between 10 to 25 years. The total number of holdings for VCLT is 2,571
Vanguard Long-Term Corporate Bond ETF Seeking Alpha Quant Ratings
| Momentum | Expenses | Dividends | Risk | Asset Flows |
| F | A | B- | F | C- |
3. iShares 10+ Year Investment Grade Corporate Bond ETF
iShares 10+ Year Investment Grade Corporate Bond ETF (IGLB) is an exchange-traded fund that seeks to track the performance of the ICE BofA 10+ Year US Corporate Index. This index is comprised of U.S. dollar-denominated investment-grade corporate bonds with remaining maturities greater than ten years.
- As of date: December 31, 2021
- 1-year Performance (price): -1.69%
- Expense Ratio: 0.06%, or $6 annually for every $10,000 invested
- 30-Day SEC Yield: 3.36
- Average Daily Volume: 1,623,165
iShares 10+ Year Investment Grade Corporate Bond ETF Performance (%)
| 1-Yr Return | 3-Yr Return | 5-Yr Return | 10-Yr Return | |
| iShares 10+ Year Investment Grade Corporate Bond ETF | -1.69% | 11.12% | 7.45% | 5.92% |
| ICE BofA 10+ Year US Corporate Index | -1.41% | 11.52% | 7.74% | 6.53% |
| Bloomberg US Aggregate Bond Index | -1.54% | 4.79% | 3.57% | 2.90% |
iShares 10+ Year Investment Grade Corporate Bond ETF slightly underperformed the ICE BofA 10+ Year US Corporate Index for the trailing 1-year return, as well as the US Aggregate Bond Index, as of December 31, 2021. Performing closely to, but slightly under, a benchmark index is to be expected for an ETF that seeks to track the performance of its benchmark.
A $10,000 investment in IGLB, made 1 year and 3 years ago, would be worth (as of December 31, 2021):
- 1 year ago: $9,831
- 3 years ago: $13,721
IGLB Structure, Objective, and Holdings
- Inception Date: 12/08/2009
- Issuer: Blackrock, Inc
- Ticker: IGLB
- Primary Exchange: NYSE Arca
- Structure: Open End Fund
- Objective: Seeks to track the investment results of an index composed of U.S. dollar-denominated investment-grade corporate bonds with remaining maturities greater than ten years
- Holdings: Invests primarily in investment-grade corporate bonds. The total number of holdings for IGLB is 3,229
iShares 10+ Year Investment Grade Corporate Bond ETF Seeking Alpha Quant Ratings
| Momentum | Expenses | Dividends | Risk | Asset Flows |
| F | A- | B- | D- | D+ |
Bottom Line
Long-term bond ETFs may track a broad market index or they may provide focused exposure to a certain type or classification of long-term bond. While bond ETFs may offer convenient, diversified access to fixed income securities, they may also carry some of the same risks as individual bonds, such as credit risk, interest rate risk and market risk.