A topic of current interest: Bonds or bond funds?
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چکیده
Executive summary. The current low-yield environment has led many bond investors to ask whether they should prepare for an eventual rebound in yields by purchasing individual bonds. The potential benefits of this strategy are often exaggerated. More important is that, for most bond investors, bond mutual funds and their exchange-traded fund (ETF) counterparts provide a number of advantages over individual bond portfolios in terms of diversification, cash-flow treatment, portfolio characteristics, costs, and liquidity.
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A topic of current interest: Bonds or bond funds?
■ Individual bonds can provide certain benefits over funds, and these advantages mostly have to do with a preference for control over security-specific decisions. The cost of these advantages can be thought of as a “control premium” that is reflected in generally higher (or additional) transaction costs, lower liquidity, more limited return opportunities, and higher bond portfolio risk. The con...
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