Are you looking to potentially cushion your investments against unforeseen risks? If so, you might want to consider European government bonds. The likelihood of a government defaulting on its loan payments is very low, so bonds are viewed as the most solid investments.
Fixed income has been a part of institutional portfolios for their diversifying properties over long periods.
Governments everywhere borrow money for public spending. In fact, the bond market is the world’s largest financial market and government bonds are the largest part of it.1 Governments normally commit to reward investors by paying a coupon, or interest, on the bond, as well as to repay it at maturity after a set number of years.
So, by investing in government bonds you can contribute to countries being able to finance their public services – from transport, to healthcare, to education.
As it is often the general case with ETFs, this Fund can turn complexity into simplicity. Building a diversified portfolio of European government bonds would be cumbersome, requiring time, expertise and attention. By contrast, just one Government Bonds ETF can – depending on its investment policy – give you exposure to bonds from multiple government issuers, with a broad range of maturities.
What’s more, ETFs are relatively low-cost way to invest compared to the do-it-yourself solution or active funds. This matters more than ever in today’s low-yield world.
The Government Bonds ETF by VanEck comes in two variants – one tracks an index that only includes the currently best-rated bonds across Europe (with AAA and AA ratings), the other one tracks an index that includes also less safer options and is designed to provide a little more yield.
This only invests in the safest euro government bonds. Expert credit rating agencies have awarded them the highest rating of AAA or AA. They currently include the bonds issued by: Germany, France, Belgium, Netherlands and Austria.
This ETF invests in the 25 largest and most liquid Euro government bonds. They include bonds that receive the highest ratings from credit rating agencies, such as Germany and the Netherlands, as well as those that are higher risk but also pay higher yields, including Italy and Portugal.
Risk of a Government Bonds ETF: Investors should consider risks before investing. See dedicated risk factors section on this website.
Changes in interest rates have a significant influence on the results of fixed-income securities issued by companies. Potential or actual downgrades in the credit rating can increase the assumed risk level. This is one of the factors to consider when investing in a Government Bonds ETF.
The issuer of the security held by the Fund may be unable to pay interest that has fallen due or repay capital. That is another risk factor to take into account when considering an investment in this ETF.
Lower liquidity means there are not enough buyers or sellers to allow the Fund to easily trade the investments. This is an additional factor to take into consideration before investing in a Government Bonds ETF.
For more information on risks, please see the “Risk Factors” section of the relevant Fund’s prospectus, available on www.vaneck.com.