Sara
Silano:
Government
bonds
are
returning
to
investors’
portfolio
and
more
and
more
this
is
being
done
through
ETFs.
Today,
I’m
joined
by
José
Garcia-Zarate,
Associate
Director
of
Passive
Strategies
Research
at
Morningstar,
to
talk
about
investing
in
government
bond
with
ETFs.
José,
thank
you
for
being
here
today.
What
are
the
pros
and
cons
of
investing
in
government
bonds
with
ETFs?
José
Garcia
Zarate:
Government
bonds
will
be
typically
used
as
a
core
building
block
in
your
portfolio.
That
basically
means
that
you
are
going
to
keep
them
for
the
long
term.
And
from
that
perspective,
keeping
a
very
tight
rein
on
management
costs
is
going
to
be
the
crucial
factor
that
makes
ETFs
an
ideal
vehicle
to
gain
access
to
the
market.
And
also,
I
would
say
that
government
bonds,
particularly
from
developed
markets,
are
very
highly
liquid
and
easy
to
replicate.
And
there
are
very
few
opportunities
for
active
managers
to
offer
value,
significant
value,
over
extended
periods.
And
that’s
made
passive
vehicles
such
as
ETFs
a
default
option
for
investors.
I
guess
that
the
potential
drawback
of
using
an
ETF
is
that
because
they
track
an
index,
they
don’t
offer
the
flexibility
of
adjusting
to
the
short-term
variations
of
the
markets.
But
I
would
say
that
that’s
more
of
a
concern
if
you
have
an
investment
horizon
which
is
very
short
term.
Over
the
long
term,
basically
the
cost
consideration
comes
into
the
equation
and
ETFs
are
really
the
best
option.
Silano:
And
how
to
select
the
best
government
bond
ETFs?
Garcia-Zarate:
The
selection
process
of
an
index
tracking
vehicle
must
always,
and
I
stress,
always,
start
with
the
index,
because
the
index
represents
the
investment
proposition
that
you’re
going
to
buy.
So,
I’d
say
that
if
you’re
investing
for
the
long
run,
then
you’re
more
likely
to
be
better
serve
with
indexes
that
cover
the
full
maturity
spectrum
and
all
the
issuing
countries
of
a
certain
area,
for
example,
of
the
Eurozone,
because
diversification
is
going
to
help
you
minimize
the
key
risks
of
investing
in
bonds,
which
are
interest
rate
risk
and
the
credit
risk
affecting
the
issuers.
But
even
if
you’re
investing
for
the
short
term
as
a
tactical
allocation
for
specific
duration
or
whatever,
the
selection
process
would
still
exactly
be
the
same.
You
always
have
to
start
understanding
the
index,
because
that’s
the
investment
proposition.
And
then
once
you’re
happy
with
the
index,
you
can
go
and
study
the
specific
aspects
of
the
ETFs
themselves,
whether
how
they
go
about
replicating
the
performance
of
the
index,
whether
the
domicile
of
the
ETF
suits
you,
and
crucially
the
costs
of
buying
and
maintaining
the
ETF
inside
the
portfolio.
Silano:
And
what
are
your
three
best
choices
on
the
Euro
government
bond
ETFs?
Garcia-Zarate:
We
actually
have
a
very
favorable
view
of
ETFs
that
cover
the
entire
maturity
spectrum
of
all
the
issuing
countries
of
the
Eurozone.
And
this
is
basically
for
investors
who
are
looking
for,
as
I
said,
for
a
core
building
block
for
the
long
term
in
their
portfolios.
And
in
fact,
several
of
these
ETFs
come
with
a
Morningstar
medalist
of
Gold.
So,
for
example,
we
have
the
iShares
Core
€
Govt
Bond
ETF
(IE00B4WXJJ64),
which
is
the
largest
in
the
category
and
charges
9
basis
points.
Also,
with
9
basis
points,
we
have
Xtrackers
Euro
Government
bond
ETF
(LU0643975591).
And
if
you
want
something
that’s
slightly
cheaper,
we’ve
got
one
from
Vanguard
(IE00BZ163H91)
and
another
one
from
Amundi
(LU1931975152).
The
Vanguard
one
charges
7
and
Amundi
charges
only
5
basis
points.
So,
I’m
giving
you
four
instead
of
three.
But
it
is
basically
to
signify
that
investors
have
plenty
of
choices
in
this
market.
And
as
I
said,
they
all
carry
a
Morningstar
medalist
rating
of
Gold.
So,
we’ve
got
a
high
opinion
of
them.
Silano:
José,
thank
you
very
much
for
coming
here
today.
For
Morningstar,
I’m
Sara
Silano.
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