How to Invest in Bond ETFs

Exchange-traded funds (ETFs) are typically associated with stocks. But there are also ETFs that you can use to invest in other asset classes such as precious metals like gold and silver, cryptocurrencies like bitcoin and Ethereum, and bonds. This moneyland.ch guide gives you the most important information about how to invest in bonds.

What is a bond?

Bonds are debt obligations that yield interest at a predetermined rate. They are issued by companies and governments in order to fund expenses and investments. When you as an investor buy a bond, you are indirectly giving the bond’s issuer a loan. In exchange, the issuer pays you interest on a regular basis. These payments are called coupons. Both the risk and the potential returns are tightly linked to the issuer’s creditworthiness.

Bonds typically have a fixed interest rate and a fixed bond term after which the issuer repays the loan (the bond’s principal). Like stocks, bonds are traded on stock exchanges. Bonds that are listed on stock exchanges can be bought and sold at any time throughout the bond term, but their market value can fluctuate depending on supply and demand.

You can find more information in the guide to investing in bonds.

How do bond ETFs work?

ETF auf Obligationen bilden die Zusammenstellung von Anleihenindizes (siehe unten) nach. Die ETF bieten Ihnen die Möglichkeit, in eine ganze Reihe von Obligationen auf einmal zu investieren. Die resultierende Diversifikation reduziert Ihr Ausfallrisiko gegenüber einzelnen Anleihen erheblich. ETF haben im Gegensatz zu einzelnen Obligationen zudem kein festes Ablaufdatum, denn die Fonds kaufen und verkaufen ständig Obligationen.

Bond ETFs replicate the performance of bond indexes, which are explained in detail further on in this guide. Bond ETFs make it easy to invest in a whole portfolio of different bonds at the same time. The resulting diversification lowers the risk of losing money because of loan defaults – compared to investing in individual bonds.

Like stocks and bonds, ETF shares can be bought and sold using a stockbroker. The Swiss neobanks Neon and Yuh also let you invest in some bond ETFs, though the selection is limited compared to using a stockbroker.

There are various fees that you must pay attention to. In addition to the custody fees and brokerage fees charged by your stockbroker, there is also an ongoing fee charged by the ETF itself. This cost is shows as the total expense ratio (TER). You can find more useful information in the checklist for investing in ETFs.

An accumulating bond ETF reinvests the returns back into the fund. A distributing ETF, on the other hand, pays out dividends which are credited to your bank account.

Are there any Swiss bond indexes?

The SIX Swiss Exchange publishes a whole family of Swiss Bond Index (SBI) subindexes. Each subindex is focused on different categories of franc-denominated bonds. All of the bonds included in these indexes are listed on the SIX exchange. The most important Swiss bond indexes are:

• SBI AAA-BBB: This is considered to be the benchmark index for bonds denominated in Swiss francs. It includes all franc-denominated bond issues with a total nominal value of at least 100 million francs and a remaining bond term of at least one year. Additionally, a bond must have a creditworthiness rating of at least BBB to be included in the index. The creditworthiness rating is based on estimates from various rating agencies.
• SBI Corporate: This index only includes the corporate bonds from the SBI AAA-BBB index. Government bonds are not included in the index.
• SBI Domestic Government: This index only includes Swiss federal bonds.
• SBI ESG AAA-BBB: This subindex uses the same criteria as the benchmark SBI AAA-BBB index, but adds additional ESG requirements. Only bonds from issuers with an Inrate rating of C+ or better are included. You can find out more about Inrate and similar ratings in the moneyland.ch guide to ESG ratings.

Table 1: Overview of Swiss bond indexes

Source: SIX. Date published: December 30, 2024. Date recorded by moneyland.ch: January 8, 2025.

Important: Many SBI indexes, including those listed in Table 1, also include bonds issued by foreign issuers. But there are subindexes that focus exclusively on Swiss issuers.

Which ETFs can I use to invest in Swiss bonds?

There are a number of bond ETFs that private investors can use to invest in the indexes shown in Table 1.

Table 2: Overview of ETFs for investing in Swiss corporate bonds

Source: Fund managers. Date: January 8, 2025.

Which ETFs can I use to invest in Swiss government bonds?

You can invest in Swiss federal bonds by buying shares in ETFs that replicate the SBI Domestic Government subindex. Bonds issued by the Swiss confederation are considered to be very secure.

You can find detailed information in the guide to investing in Swiss government bonds.

Are there any global bond ETFs?

There are ETFs that you can use to invest in bonds on a global level. These ETFs replicate global bond indexes which, in turn, track the performance of diversified portfolios of bonds from issuers all over the world.

Table 3: A selection of global bond ETFs

Global ETFs typically invest in both corporate and government bonds from numerous countries. But there are also specialized ETFs that only invest in government bonds or only invest in corporate bonds.

Important: The factsheets of bond ETFs include an overview of creditworthiness ratings – as per various rating agencies – for issuers of bonds that the fund invests in. Reviewing this information before investing in a bond ETF is highly advisable, as it helps you to gauge the risk of loss. According to the factsheets of the ETFs shown in Table 3, only bond issuers with a creditworthiness rating of at least BBB are used by these funds (as per January 2025). That indicates relatively good creditworthiness and a low risk of default.

What are the risks of investing in bond ETFs?

As with other securities, investing your money in bonds comes with a risk of loss. There is a possibility that the issuer will not be able to repay the loan. That is why you should review a bond issuer’s creditworthiness before you invest in their bonds. In many cases, the risk of loss is lower when you use bond ETFs to invest in bonds. Still, it is beneficial to study the creditworthiness ratings of the bonds that the ETF invests in.

Investing in bond ETFs has a number of additional risks:

• Interest-related risks: The prices of bonds – and therefore the value of bond ETFs – are very sensitive to changes in overall interest rate environments. The rule of thumb: When interest rates go down, the price of existing bonds goes up. The bonds held by bond ETFs also experience constant price fluctuations. When you invest in bond ETFs, you expose yourself to the the risk of changes in the interest rate environment.
• Currency-related risks: Global bond ETFs hold numerous bonds denominated by foreign currencies. Changes in the value of these currencies against the Swiss franc can positively or negatively impact your returns. Some ETFs use Swiss franc currency hedging to insure against currency fluctuations. These ETFs generally include the term CHF Hedged in their titles. But currency hedging generally results in higher ongoing investment costs.
• Unpredictability: When you buy a newly-issued bond and hold it until it matures at the end of the bond term, you can predict the exact return in advance – apart from the risk of the bond’s issuer defaulting on the loan. But the returns of bond ETFs are much more difficult to estimate because ETFs buy and sell many different bonds on an ongoing basis. 

Does investing in bond ETFs make sense?

Obligationen-ETF sind in der Regel im Vergleich zu diversifizierten Aktien-ETF eher defensive Anlageprodukte. Die Risiken mögen etwas geringer sein, doch in der Vergangenheit lag auch die Rendite in der Regel deutlich unter jener von Aktien. Wer höhere Renditen anstrebt und einen langjährigen Anlagehorizont hat, dürfte mit einem diversifizierten Aktienportfolio (zum Beispiel via ETF auf Welt-Indizes) generell besser bedient sein. Aber Achtung: Für die künftige Rendite gibt es keine Garantie.

Compared to diversified stock ETFs, bond ETFs are somewhat defensive investment vehicles. But while the risk of value fluctuations may be smaller, the returns have generally been much lower than those of stocks in the past.

Many investors use bonds as an extension of a broadly diversified stock portfolio. Doing this primarily makes sense for short- and mid-term investing, or if a large stock component does not match your risk tolerance. Bonds are an integral part of many investment strategies. The 60/40 portfolio strategy – which uses a 40-percent bond component – is one example.

If you only want to invest for a relatively short term, or have low risk tolerance, then using conventional interest-yielding solutions like savings accounts can be an alternative to investing in bonds. These solutions generally do not have any investment costs.

How well do bond ETFs perform?

The performance comparison in Table 4 shows that investments in Swiss stocks as per the Swiss Performance Index (SPI) delivered much higher returns than investments in franc-denominated bonds – over both the past five years and the past 10 years. But it is important to note that these figures are not an indicator of future performance. It is impossible to predict future returns for either stock ETFs or bond ETFs.

Table 4: Performance comparison of ETFs that track the SBI ESG AAA-BBB bond index and the SPI stock index

Performance in CHF, accounting for dividends. Source: Justetf.com. Dates used for performance sampling: January 6, 2015; January 6, 2020; January 6, 2025.

The contrast is much sharper when you compare global stock and bond ETFs, although only a 5-year comparison is possible with available data. Over the past five years, the performance of the Vanguard FTSE All-World UCITS ETF (USD) Distributing and that of the iShares Core Global Aggregate Bond UCITS ETF USD (Dist) differs in a big way. The FTSE All-World is a global stock index that tracks 4000 stocks from developed and developing countries.

Table 5: Performance comparison of a global bond ETF and a global stock ETF

Performance in CHF including dividends. Source: Justetf.com. Dates used for performance sampling: January 6, 2015; January 6, 2020; January 6, 2025.

Note: This article is provided for informational purposes only and should not be considered as investment advice. The publishers do not accept any liability in connection with this article.

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