Must-know: Why expense ratios have affected TLT and MUB

TLT and MUB

The set of ETFs that we’ve considered here consists of TLT and MUB, as shown in the following table. The 20+ Year Treasury Bond ETF (TLT) tracks an index that measures the performance of U.S. Treasury securities that have a remaining maturity of at least 20 years. MUB, the iShares National AMT-Free Muni Bond ETF, tracks an index that measures the performance of the investment-grade segment of the U.S. municipal bond market.

We note that net or effective returns (that is, returns after expenses) fall to 7.95% versus perceived returns of 8.44% for TLT for the past three years. For MUB, a 5.07% return for the past three years became 4.29%. For the past five years, returns declined to 3.08% from 3.86% for TLT, while for MUB, they fell to 3.30% from 4.60%.

The set of ETFs that we’ve considered above consists of HYD and SJNK. HYD, the VanEck Vectors High Yield Municipal Index ETF, tracks an index that has a 25% weighting in investment-grade triple-B bonds and a 75% weighting in non–investment-grade bonds. The SPDR Barclays Capital Short Term High Yield Bond ETF (SJNK) tracks an index that includes short-term publicly issued U.S. dollar–denominated high yield corporate bonds.

We note that net or effective returns (that is, returns after expenses) fall to 5.54% versus perceived returns of 8.45% for HYD for the past three years. For SJNK, 0.06% returns for the past one year eat away the entire return and even post a negative return of 0.34%. Figures for three and five years aren’t available for this fund.