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AAA Rated Industrials (5 year) - 5.22 AAA Rated Industrials (10 year) - 5.36 AAA Rated Industrials (15 year) - 5.46 AAA Rated Industrials (20 year) - 5.54 AAA Rated Industrials (25 year) - 5.60 BBB Rated Industrials (5 year) - 5.82 BBB Rated Industrials (10 year) - 6.24 BBB Rated Industrials (15 year) - 6.50 BBB Rated Industrials (20 year) - 6.69
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Income Security Dividends

Security Amount Ex-Div Date
AFE $0.45   Oct 15
BURCP $1.50   Dec 4
DMLP $0.95 IAD increased from 0.7692 to 0.9485   Oct 16
EPD $0.52 IAD increased from 0.5150 to 0.5225   Oct 29
FAV $0.46 IAD increased from 0.0045 to 0.4600   Oct 20
GEL $0.32 IAD increased from 0.3150 to 0.3225   Oct 31
LNC PRG $0.42   Oct 15
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The Logic of Bond ETFs: Mutual Funds Are Better

Searching for Alpha, the monthly index newsletter for December 2006

By Ben Warwick

December 1, 2006

There are a ton of reasons why equity exchange-traded funds (ETFs) are one of the fastest-growing investment vehicles. Cost is the most often-cited benefit. ETFs like the S&P Depository Receipts (SPY) boasts an annual expense ratio of 0.10%, a fraction of the 1.50% that the average actively-managed large-cap fund charges. The nearly impossible task of beating the market means that stock ETFs are almost always better performers as well. ETFs have rewarded long-term shareholders with virtually no capital gains exposure, to boot.

Bond ETFs are another story. Although they’re cheap to own, there are a number of open-ended mutual funds that are actually less expensive to own than, say, the Lehman Aggregate (AGG) or the iShares Lehman 7-10 yr Treasury ETF (IEF). Interest payments and short-term gains associated with bond investing put traditional bond funds and ETFs on much more level playing ground as well.

But the argument against bond ETFs comes full-circle when one considers performance. In the ten-year period ending in 1997, none of the actively managed intermediate bond funds outpaced the Lehman Aggregate Bond Index. In the next ten-year period, less than 10% of the funds were able to outgun the index.

The odds of an investor finding just the right active fund are so low it’s not worth the effort. The energy is better spent on figuring out the right asset allocation, which ends up being a much more important decision in long-term wealth creation.

Ben Warwick is CIO of Memphis-based Sovereign Wealth Management.
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