Bonds

ETF Talk: Playing the Long Game with This Long Duration Bond Fund

In a world full of uncertainties, paired with violence and unrest, having your hard-earned money invested in something you can rely on is not only important, but it is vital.

With a recent assassination attempt on former President Donald Trump and war raging in several countries that the United States has vested interest in, there are many potential factors that weigh on the economy. The potential volatility of the market is at the forefront for many Americans. Investors want a saving grace that earns money for the long term, locking in gains for the future.

As a polymath with an aptitude for history, time has proven that stability is a quality that should not be underestimated when deciding where to put your money.

The featured exchange-traded fund (ETF) this week is categorized as a Long Government ETF. The United States has been using bonds dating back to the American Revolution. But with this ETF, investors are getting exposure to the long side of the U.S. market, which is a different type of investment than our ancestors could access.

Long-Term Government Bond ETFs focus on debt sponsored by the U.S. government or associated agencies. They can include, but are not limited to, treasuries, mortgage-backed securities (MBS) or Treasury inflation-protected securities (TIPS), along with other types of debt. Long-term bonds generally have maturities beyond 10 years.

The First Trust Long Duration Opportunities ETF (LGOV) seeks to generate current income with a focus on preservation of capital.

Chart courtesy of www.stockcharts.com

In normal market conditions, this fund will invest at least 80% of its net assets in a portfolio of investment-grade debt securities guaranteed or issued by the U.S. government, government agencies, publicly issued U.S. Treasury securities, mortgage-related securities and other government-sponsored entities. Additionally, this fund may invest in ETFs that principally invest in these types of securities.

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The ETF has over $470 million in net assets. Plus, 96.3% of its assets are allocated in U.S. bonds.

Bonds are a loan to a company or government, which in this case is the United States, making them likely to be less volatile than stocks. In the current state of affairs, this is something investors are looking to more and more, especially with inflation.

While investing always carries risk, and this asset class is not exempt from that, the fact that this ETF it is backed by the U.S. government helps to minimize this risk. The U.S. government is unlikely to default on its debt, which helps to ease investors’ concerns when weighing the pros and cons of long government ETFs.

As always, I’m happy to answer any of your questions about ETFs, so do not hesitate to email me. You may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Forecasts & Strategies, Tactical Trader, TNT Trader, Five Star Trader, Bullseye Stock Trader, and The Deep Woods. His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.