Exchange-traded funds can offer a simple and inexpensive way to gain exposure to eurozone sovereign debt and some of these are highly rated by Morningstar’s fund analysts. This comes at a time when yields on eurozone debt are rising sharply and investor interest is intensifying.
Following Germany’s fiscal revolution, expectations for future government spending across the eurozone are shifting rapidly, sending longer-term bond prices tumbling and pushing up bond yields sharply. Yields on 10-year German Bunds, the benchmark security for the eurozone and one that is considered the lowest risk, reached nearly 3% on the news, a rise of 52 basis points in a month. Yields on French and Italian debt also rose.
To help investors find ETFs focused on bonds issued by eurozone states, we’ve screened 67 ETFs in Morningstar’s EUR Government Bond category for those with either Gold or Silver Medalist Ratings.
A Gold Rating means our analysts believe a fund has the greatest chance of outperforming its category over the long term, while a Silver Rating means they believe it will outperform its relevant performance benchmark and/or peer group.
A number of different providers make the list:
- iShares Core € Govt Bond UCITS ETF EUR (Dist) SEGA
- SPDR Bloomberg Euro Government Bond UCITS ETF GOVY
- Vanguard EUR Eurozone Government Bond UCITS ETF VETY
- Amundi IS Prime Euro Govies UCITS ETF PRAR
- Xtrackers II Eurozone Government Bond UCITS ETF 1C XGLE
Screening For the Best EUR Government Bond ETFs
We screened for ETFs with Gold or Silver Medalist Ratings that are 100% assigned by Morningstar analysts (rather than indirectly or quantitatively assigned). All the five ETFs that made it through the screen hold a Medalist Rating of Gold and are passively managed. Three of them track the Bloomberg Euro Aggregate Treasury Total Return Index, one tracks the Solactive Eurozone Sovereign Bond Index and the other one replicates the Markit iBoxx EUR Sovereigns Eurozone Index.
Here’s a closer look at the strategies:
iShares Core € Govt Bond UCITS ETF SEGA
The £4.8 billion iShares Core € Govt Bond UCITS ETF fell 0.68% over the past year. The fund fell further than its benchmark, the Morningstar Eurozone Treasury Bond Index, by 4 basis points. Year to date, the iShares fund is down 0.86%.
SPDR Bloomberg Euro Government Bond UCITS ETF Acc GOVY
The £1.5 billion SPDR Bloomberg Euro Government Bond UCITS ETF Acc lost 0.08% over the past year. The fund fell further than its benchmark by 0.72 percentage points. Year to date, the State Street fund shed 2.57%.
Vanguard EUR Eurozone Government Bond UCITS ETF VETY
Over the past year, the passively managed Vanguard EUR Eurozone Government Bond UCITS ETF fell 0.46%, while the average EUR government bond fund lost 0.77%. The fund placed in the 27th percentile for performance and edged out its benchmark, the Morningstar Eurozone Treasury Bond Index, by 0.18 percentage points. The £3 billion fund has dropped 0.43% year to date, falling further than the average fund in its category, which fell 0.08%.
Amundi Index Solutions Prime Euro Govies PRAR
The passively managed Amundi Prime Euro Govies lost 0.68% over the past year, falling less than the average fund in the EUR government bond category, which fell 0.77%. The fund placed in the 37th percentile for performance and fell further than its benchmark by 0.04 percentage points. The £1.3 billion fund has lost 0.41% year to date, while the average fund in its category is down 0.08%.
Xtrackers II Eurozone Government Bond UCITS ETF XGLE
The £2.7 billion Xtrackers II Eurozone Government Bond UCITS ETF fell 1.13% over the past year. The loss on the passively managed fund was worse than the 0.77% loss on the average fund in the EUR government bond category, leaving it in the 33rd percentile for performance. The fund fell further than its benchmark by 0.49 percentage points. Year to date, the Xtrackers fund fell 0.76%, while the average fund in its category fell 0.08%.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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