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What's covered?

  • Bonds – also known as fixed income – are essentially an IOU. Governments and companies borrow money when they issue bonds, then promise to repay it at the end of the bond’s life.
  • Fixed income can add diversification to your portfolio, thereby making it more resilient.
  • Bond ETFs are a transparent and cost-effective way to invest in bonds.

Capital at risk. All financial investments involve an element of risk. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed.

Introduction to bonds

When a government, public authority or company wants to raise money, what does it do? One option is to issue fixed-income securities, or bonds. 

These bonds are bought by investors, who receive a set interest payment each year, as well as repayment of the bond’s face value at a pre-arranged date. This date is known as the bond’s maturity.

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You can buy bonds with all kinds of maturity dates – ranging from a few months to many years. Bonds with longer maturity dates – say 20 years from now – are considered riskier than shorter bonds. This is because it is difficult to know what the economy will look like in the future. Long-term bonds tend to pay a higher interest rate because the bond holder is more exposed to interest rate and inflation risks.

 

It’s not just governments that issue bonds – companies issue them too. The governments of countries like the UK and US have a good track record when it comes to repaying their bonds. These bonds are considered less risky than bonds issued by companies. Corporate bonds tend to pay more interest, to compensate the buyer for the risk of loss.

 

When valuing a bond, we consider its yield. Expressed as an annual percentage, the yield considers the bond’s purchase price and the interest payments expected over its life. A few other factors affect the yield, such as interest rates and the creditworthiness of the issuer. Riskier bonds have higher yields.

 


Why investors pick bonds

Build resilience in your portfolio

Including bonds in your strategy increases diversification, which makes your portfolio more resilient. This is particularly relevant to investors who increased their stock exposure in recent years in response to low interest rates.

  • Diversification explained

    A diversified portfolio is one that spreads risk by investing in various assets, such as bonds and equities. The key to this approach is investing in assets that are uncorrelated, meaning they react differently to changes in the economy.

    Often, when interest rates are low, but the economy is growing, investors are encouraged to move into riskier sources of income and returns. For some, that means moving from bonds to stocks.

    The downside is that these investors could have a high exposure to equity risk in their portfolios. In this scenario, the investor’s portfolio is less diversified and potentially more vulnerable to an equity market sell-off (the event of rapid selling of stocks due to market movements or political events).

Diversification risk: Diversification and asset allocation may not protect against market risk or loss of principal.

Seeking a steady income

For a steady income stream, you have the option to invest in a mixture of bonds – some riskier, some less so. This provides diversification and can help to generate income without eroding your capital.

  • The spectrum of bonds

    Income is a big reason why bonds have proven so popular with investors over the years. Both mutual funds and bond ETFs invest in a wide range of bonds, all of which seek to pay a fixed amount of interest.

    Many investors want to target a regular income without denting their overall returns. To achieve this income, diversification and an awareness of risk is key. Bonds deemed less creditworthy usually offer a higher yield. On the other hand, bonds perceive to be safer generally yield less. Investing in a diversified portfolio of bonds, right across the fixed income spectrum, can offer greater potential to achieve income goals.

Make your cash work for you

Bonds are deemed less risky than stocks, because bondholders are repaid before shareholders if a company encounters financial problems. This makes them attractive to cautious investors who are seeking better returns than those available from cash.

  • Are bonds deemed less risky than equities?

    Cautious investors who might not want to take a lot of risk with their capital often allocate part of their portfolios to fixed income. Unlike stocks, where the company does not promise to return your investment, bond issuers make a contractual promise to do so.

    In addition, if a company enters financial difficulty, bondholders are repaid before shareholders. Many investors find the capital preservation and portfolio stability offered by fixed income attractive.

    An alternative to cash
    Another option available to risk-averse investors is to keep their money in cash. When investing in cash, it’s important to remember the risk of opportunity cost – that the returns from cash are lower than the returns available elsewhere. An allocation to high-quality and/or inflation-protected fixed income assets can offer an effective strategy to limit portfolio losses, while leaving room for capital appreciation.

Why index your bonds

A bond ETF is a collection of bonds that trades on an index, like stocks do. Investors of all stripes — from sophisticated institutions, financial advisors and personal investors — like ETFs because they make investing in bonds easy and simple.
Transparency
Transparency
Bond ETFs track a rules-based index, investors are clear about the composition and risk characteristics of their exposure.
Index
Priced like an index
Unlike mutual funds, which are usually priced daily, a bond ETF is priced like an index. This helps to provide instant access to fixed income markets on demand.
cost-efficiency
Cost efficiency
Bond ETFs are cost-efficient too, generally due to lower management charges compared to actively managed mutual funds.

iShares range of CHF Hedged ETFs

iShares J.P. Morgan $ EM Bond UCITS ETF CHF Hedged (Acc)
iShares $ Treasury Bond 1-3yr UCITS ETF CHF Hedged (Acc)
iShares $ Corp Bond UCITS ETF CHF Hedged (Acc)
iShares $ Treasury Bond 7-10yr UCITS ETF CHF Hedged (Acc)
iShares Global Corp Bond UCITS ETF CHF Hedged (Acc)
iShares Global High Yield Corp Bond UCITS ETF CHF Hedged (Acc)
iShares $ High Yield Corp Bond UCITS ETF CHF Hedged (Acc)
iShares Core € Corp Bond UCITS ETF CHF Hedged (Acc)
iShares € High Yield Corp Bond UCITS ETF CHF Hedged (Acc)


Expense ratios shown under tickers.

Why iShares for fixed income

global-partner
Your global partner
Investors around the world have entrusted us with $2 trillion in fixed income assets1.
scale
Scale = efficiency
A bond ETF is priced like an index providing instant access to fixed income markets and thousands of bonds can be tapped into in a single trade.
complete-range
A complete range of solutions
Our range of fixed income ETFs caters to a wide range of risk appetites and investment outcomes. Products range from government bonds to emerging market debt.