12 Bond Mutual Funds and ETFs to Buy for Protection

Bond mutual funds and ETFs have run up during this tumultuous year, but many can still shield investors from future volatility and stock losses.

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When the stock market took a beating this spring, nervous investors looked to bond mutual funds and exchange-traded funds (ETFs) for protection and sanity. After all, fixed income typically provides regular cash and lower volatility when markets hit turbulence.

And the markets absolutely hit turbulence. For instance, between Feb. 19 and March 10, not only did the S&P 500 experience a historically rapid loss of 14.8% – it experienced a dramatic rise in volatility, too, hitting its highest level on that front since 2011, says Jodie Gunzberg, chief investment strategist at New York-based Graystone Consulting, a Morgan Stanley business. The index's losses and volatility escalated even more through the March 23 lows.

However, bonds offer ballast – "not only downside protection but also moderate upside potential as investors tend to seek out the safety of U.S. government and investment-grade corporate bonds amid stock market uncertainty" – says Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA, a New York-based investment research company.

Bond prices often are uncorrelated to equities. Stocks typically do well in periods of economic growth, whereas bonds typically do well in periods of declining economic activity, Gunzberg says. The Federal Reserve has also thrown in its support, buying up corporate bonds and even bond ETFs over the past couple months, in turn driving up private purchases of debt.

Indeed, bond funds have done extremely well in 2020. Of course, yields have thinned out and their room for upside has shrunk as a result. Nonetheless, investors still can find stability and some measure of income in these products.

Here are 12 bond mutual funds and bond ETFs to buy. These funds offer diversified portfolios of hundreds if not thousands of bonds, and most primarily rely on debt such as Treasuries and other investment-grade bonds. Just remember: This is an unprecedented environment, and even the bond market is acting unusually in some areas, so be especially mindful of your own risk tolerance.


Returns and data are as of July 21, unless otherwise noted. For mutual funds, returns and data are gathered for the share class with the lowest required minimum initial investment – typically the Investor share class or A share class. If you use an investment adviser or online brokerage, you may be able to buy lower-cost share classes of some of these funds. Yields are SEC yields, which reflect the interest earned after deducting fund expenses for the most recent 30-day period and are a standard measure for bond and preferred-stock funds.

Contributing Writer, Kiplinger.com
Ellen Chang is a freelance journalist who is based in Houston and writes articles for TheStreet and U.S. News & World Report. Chang focuses her articles on stocks, personal finance, energy and cybersecurity. Her byline has appeared in national business publications, including USA Today, CBS News, Yahoo Finance and MSN Money. She is a proud graduate of Purdue University and a lover of random acts of kindness, volunteering and cats and dogs. Follow her on Twitter at @ellenychang and Instagram at @ellenyinchang.