As the U.S. Fed continues to raise interest rates, bond prices have fallen significantly. Many investors believe that bond prices will rise with future rate cuts. Today, let’s look into detailed information about the U.S. TLT ETF, which invests in bond prices.
- TLT ETF Basic Information
- TLT ETF Dividends
- TLT ETF Share Price
- TLT ETF Investment Outlook
- Considerations When Investing in TLT ETF
TLT ETF Basic Information
To gauge the ranking of TLT among U.S. bond ETFs, we can look at its position in terms of asset size. It stands at 5th place, with assets around 52 billion dollar.
Please check the list of bond ETFs below for more information.
| Rank | Symbol | ETF Name | Total Assets ($MM) |
| 1 | BND | Vanguard Total Bond Market ETF | 104,870 |
| 2 | AGG | iShares Core U.S. Aggregate Bond ETF | 101,505 |
| 3 | BNDX | Vanguard Total International Bond ETF | 54,166 |
| 4 | TLT | iShares 20+ Year Treasury Bond ETF | 52,163 |
| 5 | VCIT | Vanguard Intermediate-Term Corporate Bond ETF | 45,062 |
| 6 | MUB | iShares National Muni Bond ETF | 38,151 |
| 7 | VCSH | Vanguard Short-Term Corporate Bond ETF | 35,411 |
| 8 | BIL | SPDR Bloomberg 1-3 Month T-Bill ETF | 33,353 |
| 9 | LQD | iShares iBoxx $ Investment Grade Corporate Bond ETF | 32,035 |
| 10 | VTEB | Vanguard Tax-Exempt Bond ETF | 31,866 |
Basic Information
- TLT Management Company: BlackRock
- One of the large asset management companies in the U.S.
- Operates under the fund brand iShares.
- TLT Investment Strategy
- TLT tracks the ICE U.S. Treasury 20+ Year Bond Index. In simple terms, this ETF invests in U.S. Treasury bonds with maturities of 20 years or more.
- TLT Share Price: $98
- TLT Dividend Yield: 3.5%
- TLT Annual Expense Ratio: 0.15%
Reasons for TLT’s Popularity
High Price Volatility
- The popularity of TLT stems from its high price volatility, despite being a bond asset.
- Bonds are known as safe assets, but TLT invests in long-term rates, making it highly sensitive to interest rate changes, leading to significant price fluctuations.
- These characteristics of TLT can be attractive to investors targeting higher returns.
Appropriate Dividend Yield
- Since it invests in long-term bonds, TLT offers a higher dividend (interest) yield than bond assets investing in short-term bonds.
- This is typically because long-term rates are higher than short-term rates.
Monthly Dividend Income
- Bonds inherently pay interest monthly in the form of coupons.
- As TLT invests in bond assets, it also distributes interest monthly. With a 3.5% annual level, it can offer an effect similar to receiving monthly rent.
- For your reference, TLT usually pays dividends between the 5th and 8th of each month.
TLT ETF Dividends
Let’s delve into more detail about the dividend income.
- Dividend Yield: 3.5%
- Dividend Frequency: Monthly payouts
For detailed payment information, please check below.
Dividend Increase: It can be considered as interest linked to bond yields. It does not grow dividends like SCHD does.
TLT ETF Share Price
Since it invests in long-term bonds, the share price of TLT moves inversely to interest rates. In other words, when interest rates rise, the share price of TLT falls, and when interest rates decrease, the share price of TLT rises.
Additionally, the price is more sensitive to changes compared to short-term bond ETFs. Let’s take a look at the trend of the share price over different periods.
In the last 6 month
Compared the price trends of BND and TLT. (blue line: TLT, yellow line: BND)
In the last 12 month
TLT has higher price volatility than BND because it holds long-term bonds as its assets.
In the last 60 month
Bonds are affected by interest rates because the value of future cash flows (earnings) decreases as interest rates rise. This is due to the inverse relationship between bond prices and interest rates
for example, when rates go up, the present value of bond’s future cash flows, which are fixed, becomes less attractive, which is leading to a decrease in the bond’s price.
TLT ETF Investment Outlook
As is often reiterated, it ultimately comes down to the direction of interest rates. The future movement of TLT’s share price will be determined by whether interest rates will rise or fall.
There is a wide range of opinions among experts and general investors regarding the Federal Reserve’s continued interest rate hikes. Some believe that the likelihood of rates decreasing in the future is high, while others say that the Fed may continue to raise rates in order to curb inflation.
Certainly, when considering the recent period, interest rates are relatively high at present. However, whether the Federal Reserve will maintain rates at this level or increase them further is quite difficult to predict.
Ultimately, it depends on whether you believe that interest rates will eventually decrease in the long term. Personally, I cautiously think that the level of interest rates might ease somewhat.
The level of interest rates often reflects the rate of economic growth. There is skepticism about whether the global and U.S. economies can maintain the high growth rates of the past.
Considerations When Investing in TLT ETF
As an investor in TLT, here are some important considerations to share:
Cosiderable Investors:
- It may somewhat be fit for investors who seek stability and dividend income over the long term compared to stocks.
- It may be a considerable asset for investors who are interested in bond assets.
Disadvantages
Interest Rate Volatility Exposure:
- It may be more sensitive to interest rate changes compared to short-term bonds, resulting in potential losses greater than expected. vs. BND
Lower Dividend Yield
- The dividend yield may be lower compared to ETFs that specialize in dividends. vs. JEPI
Dollar Volatility:
- Returns are in U.S. dollars, so exchange rates could impact the returns.
- Particularly, if bond prices rise, the value of the dollar could drop, which may decrease the profits when converted to domestic currency.
Limited Price Return Potential:
- Since the returns are linked to interest rate changes, there is a limit to the potential returns. Even looking at a 5-year chart, the maximum return that can be secured from peak prices is about 40%.
- Note: On the other hand, leveraged bond funds like TMF might be considered for pursuing higher returns. (Leveraged Bond ETF)
Disclaimer
- This article is not written to solicit investments.
- The information provided may not be accurate due to differences in the reference period and methods, so investors are advised to verify it themselves.
- The decision and responsibility for investments lie with the individual investor, and the author of this article does not bear any responsibility for the investment results of the readers.
The copyright of this article belongs to seekingtopetf.com.