As another debt ceiling debate looms in 2014 and Congress seem incapable of finding a solution, Treasuries don’t have the same appeal they once had.
Today’s fixed income environment seems to be turned on its head. It used to be that U.S. Treasuries were thought of as one of the safest possible allocations one could make, and whether or not this is still the case the public perception has certainly shifted. After watching Congress bump up against defaults on more than one occasion, it seems that the confidence that once boosted U.S. debts is beginning to erode.
With yet another debt ceiling debate coming in 2014 and no sign of Congress cooperating to find a real solution, Treasuries simply do not have the same appeal they once had. At the same time, investors do not want to leave their “rainy day” funds sitting in cash, earning nothing. Below, we offer five intriguing alternatives to U.S. Treasuries:
1. Pimco Total Return ETF (BOND)
For those who still want some exposure to Treasuries, Pimco‘s BOND is a great option. The fund is managed by legendary bond investor Bill Gross and remains fully transparent—investors can find BOND’s exposure at any time by simply visiting its page on Pimco’s website. As an active product with a solid manager, BOND can still cover a bit of a Treasury allocation for those who want it, but it will also be able to quickly shift or exit a position if things head south on Capitol Hill.
The fund has amassed more than $3.8 billion in assets in just over 18 months and charges just 0.55%, a relatively cheap expense for a product featuring active management.
2. iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
Staying in the fixed income space, investors having trouble trusting Treasuries may want to turn their attention to corporate debt. While it is not necessarily the safest bet on the market, it is very unlikely that a number of these bellwethers would ever default on their notes with names like Goldman Sachs, AT&T, JP Morgan and GE among other names in this portfolio. Better yet, corporate debt will offer a much more attractive coupon, as this fund pays out nearly 3.5% per year.
3. SPDR S&P Dividend ETF (SDY)
Some investors are wary of the fixed income in general, especially after witnessing the current bull run that equities are enjoying. SDY presents itself as one of the safest and strongest alternatives for investors who do not mind the added risk that equities tend to carry. The fund invests in the 50 highest yielding securities in the S&P Dividend Aristocrats Index, an exclusive list that contains only firms that have increased their dividends for 25 or more consecutive years [see also Dividend ETF Special: 25 Equity ETFs With Attractive Distribution Yields].