About this video

• Video Title: The BEST Bond ETFs in 2025 (EU Investor)
• Channel: Tom Crosshill
• Speakers: Tom Crosshill
• Duration: 00:20:16

Overview

This video provides a guide for European investors on how to select the best bond ETFs for their portfolios. The speaker outlines four key criteria for choosing bond ETFs: bond rating, maturity, bond type, and currency. Additionally, the video discusses recent research suggesting that for some investors, relying heavily on bonds might be a mistake, and explores alternative investment strategies.

Key takeaways

• Bond ETFs as Risk Reducers: Bond ETFs are often recommended to reduce portfolio risk and provide passive income, but careful selection is crucial for European investors.
• Four Key Selection Criteria:
  • Bond Rating: Investors should consider the creditworthiness of bond issuers, ranging from AAA (safest) to sub-investment grade (riskier, higher potential yield). The speaker emphasizes prioritizing "I want my money back" and generally favors investment-grade bonds for risk reduction.
  • Maturity: The length of time until a bond matures impacts interest rate risk. Shorter maturities (0-3 years) are generally less risky but offer lower yields. Longer maturities (10+ years) have higher interest rate risk but can offer higher yields. The speaker recommends matching maturity to investment time horizon, suggesting money market funds for short-term needs and avoiding very long-term bonds for most investors. Target maturity ETFs are highlighted as a solution for predictable cash flow.
  • Bond Type: Bonds can be government or corporate. Government bonds are generally safer but less profitable, while corporate bonds carry more risk but offer higher potential returns. Tax implications for investors in different European countries can influence the preference between government and corporate bond ETFs. Inflation-linked bonds offer protection against unexpected inflation but may not always keep pace with general inflation.
  • Currency: For European investors, it's generally advisable to invest in bonds denominated in their local currency (e.g., Euros, Pounds, Swiss Francs) or use currency-hedged ETFs to mitigate currency risk, especially when considering US Treasuries.
• Controversial Research on Bond Investing: Recent research suggests that for long-term investors, a 100% stock portfolio might be more profitable than a diversified portfolio including bonds, as bonds may not consistently outpace inflation and can lead to running out of money before retirement. However, the speaker cautions that this approach requires the ability to remain calm during market downturns.
• Practical ETF Selection: The website justETF.com is recommended as a resource for finding and filtering bond ETFs based on the discussed criteria.

The "catch" for European investors considering US Treasuries is currency risk. Even though US government bonds are considered safe, the value of the investment can decrease significantly if the US dollar weakens against the investor's local currency (e.g., Euros).

This risk can be managed in two main ways:

1. Stick to bonds denominated in your local currency: Invest in ETFs that hold bonds issued in your own currency, such as Euro-denominated or Pound-denominated bonds.
2. Use currency-hedged ETFs: Invest in ETFs that specifically offer currency hedging to your local currency. While hedging removes currency risk, it also typically eliminates the yield premium associated with foreign bonds.

The video doesn't recommend one specific ETF to choose. Instead, it provides criteria and a framework for how to choose the right ETF based on your individual investment goals and risk tolerance.

The speaker guides viewers through selecting ETFs using the website justETF.com and filtering based on:

• Bond Rating: (e.g., AAA, Investment Grade)
• Maturity: (e.g., 0-1 years, 1-3 years, 3-5 years, all maturities)
• Bond Type: (e.g., Corporate, Government, Aggregate)
• Currency: (e.g., EUR, USD, CHF)
• Currency Hedging: (e.g., EUR Hedged, none)

The speaker then uses examples like "iShares Core Euro Corporate Bond ETF" and "iShares Euro High Yield Corporate Bond ETF" to illustrate the differences between investment grade and high yield bonds, and mentions "iBonds ETFs" and "XTrackers Target Maturity ETFs" as examples of ETFs with specific maturity dates.

Ultimately, the best ETF for you will depend on your personal financial situation, your investment time horizon, and whether your primary goal is risk reduction or maximizing returns.