Best of Buy Side Awards 2025: Bond ETFs
“In 2024, rate cuts finally occurred, and now it feels like everything is on hold,” says Todd Rosenbluth, head of research at analytics firm TMX VettaFi. “It feels like we’re all waiting for clarity.”
Last year’s winners tended to be high-yield bond funds, which averaged 7.60% returns, and short-term funds, which gained 5.10%. Meanwhile, longer-term funds, which are most sensitive to interest rate changes, lost 0.90% on average.
Nothing to write home about, perhaps, when compared with the S&P 500’s 23.3% gain for the year. But as any investment product tells you, past results don’t determine future performance — and there are reasons for bond investors to be optimistic right now.
First, with stocks already richly valued, it may be time in the cycle for fixed income to shine. When the global stage is unsettled, investors tend to favor areas of relative safety and guaranteed income.
Second, yields are very attractive. “We haven’t seen yields like this in around 20 years,” says Paul Olmsted, senior manager research analyst at Chicago-based fund researcher Morningstar. “So it’s an attractive time to be in the bond market. Bond investors have been through years of near-zero interest rates, so it’s nice to see these healthy yields.”
That said, which solid funds can retail investors look to in 2025? There are a thousand different flavors in the bond market, of course — but for a few key categories, we crunched the data, talked to experts and selected standouts in which investors can be confident.
Best core
JPMorgan Core Plus Bond ETF (JCPB)
Annual fee: 0.38%
Fund size: $5.4 billion
SEC yield: 4.95%
In an uncertain climate for bonds, it may help to have a portfolio that is actively managed by skilled professionals who can potentially sidestep risk and outperform benchmarks.
As such, we like JPMorgan Core Plus, which has reliably bested its category peers over one, three and five years. Morningstar analysts are also big fans, awarding the fund an “Above Average” clean sweep in its three evaluation categories: people, process and parent.
“JPMorgan has some of the best and deepest supporting resources in the business,” Olmsted says. “The debt is predominantly high-quality, but by focusing less on Treasuries, the fund has a yield advantage. Its managers have had very solid, consistent performance across the board.”
The fund’s 2024 returns of 2.95% and 2023 returns of 7.13% slightly bested last year’s choice Fidelity Total Bond (FBND), another solid performer in the category.
Investors should be aware that core bond funds essentially give you a full “tasting menu” of available debt. This JPMorgan offering includes everything from AAA-rated bonds all the way down to BB or B, in a balanced mix of government, corporate and securitized holdings.
However, its expense ratio of 0.38% is higher than that of its passively managed counterparts in the space. In this hazy bond environment, having managerial flexibility and an unmatched team for credit research is likely worth the cost.
Best international
Vanguard Total International Bond (BNDX)
Annual fee: 0.07%
Fund size: $63 billion
SEC yield: 3.07%
Investing in the debt instruments of numerous foreign countries (and companies) is tricky, especially with currency fluctuations that could present an added level of risk. But this Vanguard offering takes care of these challenges with one-stop shopping.
We love that Morningstar gives it above-average marks across the board in its evaluation metrics. More than 60% of its holdings are issued by governments, which should give investors some comfort, and barely any holdings are lower than BBB-rated.
“It’s a great core choice,” Rosenbluth says. “It’s low-cost, well-diversified and can serve as an ideal portfolio building block. It’s also currency-hedged, which is helpful for investors who don’t have strong views on the Euro or the Yen or any other international currencies.”
Risk is evenly spread around the world, which should minimize credit shocks from any particular country. Its largest current holdings, for instance, originate from Italy at 0.47% and France at 0.43% of the total portfolio.
Its performance speaks for itself compared to muted bond returns in the U.S. over the last couple of years. In 2024, it returned 3.56%, and in 2023, it returned 8.77% — exactly what you want from a bond fund, to provide portfolio ballast and a counterweight to stocks.
Of course, the fund comes at the low price that Vanguard is known for. Vanguard Total International Bond gets you that foreign fixed income exposure at a mere 0.07%, far below the average of similar funds. That in itself is a big win for investors.
Best for taxes
Vanguard Tax-Exempt Bond Index (VTEB)
Annual fee: 0.03%
Fund size: $36.3 billion
SEC yield: 3.55%
In eras of slimmer returns, taxes take on added importance to portfolio performance. This option from investment giant Vanguard is appealing thanks to the tax-free nature of its municipal holdings, which proves particularly helpful when held within taxable accounts.
“There are not a lot of high-quality options out there, especially in the municipal bond market, and this is a primary one,” Olmsted says. “Prices matter, and Vanguard’s new expense cuts affect this fund, too.”
Its already minimal fees — at 0.05% — were recently slashed to 0.03%, which should please cost-conscious investors.
Such moves help account for the fund’s gold analyst rating from Morningstar. We appreciate that its risk profile is limited, with nearly all of its holdings rated A or above — over 98%, in fact.
Its returns are modest, as you might expect for municipal fixed income — 1.31% in 2024 and 6.15% in 2023 — but its tax-free nature and the safety of its underlying holdings certainly appeal to those worried about volatility in other segments of the markets.
The organization’s size and experience also play a positive role: It manages a portfolio of nearly 10,000 bonds — more than enough to distribute risk, sidestep taxes and help you sleep at night.
Best for safety
PIMCO Enhanced Short Maturity Active ETF (MINT)
Annual fee: 0.35%
Fund size: $12.3 billion
SEC yield: 4.39%
One danger of longer-term bond funds is that they are quite rate-sensitive. If the payouts of their current holdings suddenly don’t look so attractive, things can go south in a hurry.
Shorter-term bond funds have become more appealing, since they are relatively nimble and adaptable to change. This PIMCO offering, which is gold-rated by Morningstar, has boasted particularly powerful returns over the past couple of years: 5.94% in 2024 and 6.25% in 2023. Even in 2022, when most bond funds were getting clobbered, it only slid 1 percentage point.
That recent outperformance — edging last year’s winner, JP Morgan Ultra-Short Income (JPST) — is doubtless due to its long experience in the space, which you don’t always find with the relatively new field of ETFs. It’s also actively managed (unlike most ETFs that passively follow an index), which means managers can shift holdings as the occasion warrants.
“It has a strong track record of management, very low interest rate sensitivity, and is the oldest of the actively managed, ultra-short bond ETFs,” Rosenbluth says. “They have a strong heritage and a long-term track record to pull from.”
For investors interested in safety, all of its holdings are rated BB or above — more conservative than its category peers. In uncertain times, that kind of experience and demonstrated performance is precisely what investors want.
Best for high-yield bonds
iShares 0-5 Year High-Yield Corporate Bond ETF (SHYG)
Annual fee: 0.30%
Fund size: $6.5 billion
SEC yield: 7.11%
Investing in high-yield bonds can be risky since lofty payouts often come with lower credit quality. As such, you want a money manager with a proven track record in navigating this tricky market.
That brings us to iShares 0-5 Year High-Yield Corporate Bond ETF, parented by BlackRock. Its SEC yield of 7.11%, certain to catch the eye of income-oriented investors, derives from underlying corporate bonds.
As you might expect, the credit quality isn’t what you would see from other sectors of the market like Treasurys. The vast majority of its holdings are rated B and BB.
But you can’t question the results: The fund returned 8.17% in 2024 and 10.38% in 2023, eye-popping in the fixed-income world. No wonder its asset size, now up to $6.5 billion, has ballooned.
“It’s always a good choice,” Rosenbluth says. “It gives you broad exposure to the high-yield market without the same interest rate sensitivity as some other funds. Its returns are consistent, which is an added plus.”
It should be noted that the stated time horizon of zero to five years does constrain the types of bonds in its mix. For investors interested in more flexibility, Morningstar’s Olmsted singles out PGIM Active High Yield Bond ETF (PHYL), another highly-rated fund with similarly powerful yields.
Bond terms to know
Before you begin investing in bond ETFs, here are some common terms you should know.
Bond
A bond is a financial instrument that acts as an IOU between the issuer and the investor. Bonds typically, though not always, pay a fixed rate of interest. Unlike stocks, bonds promise relatively predictable returns. That’s because they offer a steady stream of interest, or coupon, payments. This is what gives them the name “fixed-income” investments.
Issuer
A bond’s issuer is the government, corporation or other entity that is borrowing money by selling bonds. The U.S. government issues Treasuries, while individual companies issue corporate bonds. State and local governments issue municipal bonds.
Face value
The face value is the price at which a bond is sold when it is issued and typically represents the sum of money bondholders will receive as repayment when the bond matures. However, when bonds are traded on the open market, they usually trade above or below their face values, depending on the movement of interest rates. The face value is also called the par value or the principal.
Coupon rate
Bonds are popular because investors receive regular interest payments throughout their lifetime. The interest rate that determines those payments is referred to as the coupon rate. This rate is expressed as a percentage and shows the annual coupon payments relative to the bond’s face value.
Maturity date
When you buy a bond, you’re lending money to the government or a corporation — and you want to know when exactly you’ll get that money back. The maturity date is the day on which the issuer must pay investors the bond’s principal in full.
Investment grade
Bonds are rated on their creditworthiness. High-quality bonds that have a low risk of default are considered investment grade. Typically, bonds that are rated at least Baa by credit rating agency Moody’s or BBB by S&P and Fitch qualify as investment grade. Keep in mind that lower-quality bonds typically offer higher yields but carry greater risk.
Methodology
Morningstar identified more than 700 fixed-income ETFs across a wide variety of subcategories, regions and durations. We started by looking for funds that had a consistent track record, quality management, above-average returns and below-average fees. Beyond that, we looked for funds that had broad-based portfolios that produced for investors over time.
We consulted with fund experts at Morningstar and TMX VettaFi to determine the highest-ranked options offered by stable, trustworthy providers. Data such as fund returns, yields, expense ratios and assets under management were updated as of February 2025.