3 Great Bond ETFs That Do Things Differently

Lan Anh Tran: As ETF providers turn their focus toward fixed income, there has never been a more interesting time to browse the menu of bond ETFs. Gone are the days where plain index fund bonds were your only options for an ETF portfolio. Here are three interesting bond ETFs that take less conventional approaches toward great results.

3 Great Bond ETFs That Do Things Differently

1. Janus Henderson CLO AAA ETF JAAA
2. Vanguard Total International Bond ETF BNDX
3. PGIM Short Duration Multi-Sector Bond ETF PSDM

First up, Bronze-rated Janus Henderson CLO AAA ETF, ticker JAAA, draws investors in with its unique focus on collateralized loan obligations, otherwise known as CLOs.

CLOs are actively managed, diversified pools of non-investment-grade bank loans. So each CLO pools together the income stream from a portfolio of loans, and it then divides that cash flow into multiple tranches, each having a different level of protection against losses on the underlying securities. Higher tranches are better insulated from loss, enjoy lower default rates, and as a result, carry higher credit ratings.

The ETF’s seasoned team managers are diligent in monitoring the risk profile and collateral quality of the underlying securities as well as the management of the CLOs themselves. They invest at least 90% of the ETF’s assets in AAA rated CLO tranches and sensibly cap the fund’s exposure to any single CLO manager or deal. The ETF sits in the ultra short bond Morningstar Category, where peers often take on stakes in Treasuries and corporate bonds. Nonetheless, its singular focus on CLO boosts its trailing 12-month yields to 5.8% compared to only 4.7% for its category average.

The ETF’s short track record has been compelling. It’s ranked in the top quartile of its category over the trailing three years ending in July 2025. This ETF can be more volatile than peers in time of credit stress, but its risk-adjusted return has been strong so far.

Next up, Silver-rated Vanguard Total International Bond ETF BNDX. This ETF is a straightforward passive international-bond fund, except that it caps its exposure to Chinese bonds. The Chinese bond market, the second-largest in the world, can take up to 20% to 30% of an international bond portfolio with its market weight. But it is also a market with opaque regulations, low level of liquidity outside of government bonds, and rocky market access. Given the passive nature of this fund and its vast asset base of over 100 billion, the ETF adopted this prudent limit to avoid transaction costs and operational challenges in periods of liquidity stress in the Chinese market. As a result, it has yet to invest more than 2% of its portfolio in Chinese bonds, despite their market share.

The ETF might underperform unconstrained peers when Chinese bonds outperform other international markets, but it has also avoided the slump when they reverse these gains, such as in the first half of 2023. While this narrows the ETF opportunity set, it still sweeps in the broad swath of foreign bonds for international-minded investors. The ETF has outperformed its category average by 24 basis point annualized between its 2013 inception and July 2025. Much of this came from its high-quality tilt and superior protection during credit market stress.

And last but not least, Gold-rated PGIM Short Duration Multi-Sector Bond ETF, ticker PSDM. This short-term bond ETF can provide strong returns to investors who can stomach its wide scope and higher volatility.

As the name suggests, this ETF spans across multiple sectors in its quest to outperform its benchmark. Rather than playing it safe in this relatively low-risk corner of the market, it bets on securitized and corporate bonds and reaches as far as developed- and emerging-market debts.

While this approach takes on more credit risk than most peers, the ETF’s veteran team of managers and supporting analysts have demonstrated their expertise in times of market stress. They cut back on interest rate risk in the end of 2021, as they consider inflation to be persistent. Their stake in emerging-market debts also shrunk in recent years, as slowing growth and geopolitical tensions have proved challenging for many of these markets.

While the ETF was launched recently in 2023, its mutual fund sibling has been outperforming peers in the short-term bond Morningstar Category since its 2014 inception. The mutual fund R6 share class ranked in the top quartile of its category in the trailing 10 years ending July 2025. Its higher volatility over this period was justified by its superior risk-adjusted return, as measured by its Sharpe ratio.

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