Twelve For '12: Bond ETFs to Watch In The New Year

For all the talk of bond bubbles, bond ETFs as a group represent more than 10% of all assets under management at U.S. exchange-traded products. At the end of November, traditional long bond ETFs had almost $172 billion in assets under management out of the just over $1 trillion in AUM for all 1,400 U.S.-listed ETFs and ETNs. That doesn't include short and leveraged bond fund s. And with 2012 shaping up to potentially be another shaky year for global equity markets thanks to Europe's sovereign debt crisis, emerging markets inflation and lingering concerns about U.S. economic growth, bond ETFs could easily inflows that top this year's impressive numbers. The good news there are many more exciting options out there than just the Vanguard Total Bond Market ETF BND and the iShares Barclays Aggregate Bond Fund AGG. With that in mind, here are 12 bond funds to consider in 2012. Schwab U.S. Aggregate Bond ETF SCHZ: We'll hold off on the more exciting bond ETF options for a minute to talk about the Schwab U.S. Aggregate Bond ETF, which is supposed to be a direct competitor to AGG and BND. Well, there's not much competition because SCHZ has the lowest expense ratio of the trio and has been the top performer of the three in 2011. SPDR Barclays Capital High Yield Bond ETF JNK: One of the bond world's risk appetite plays, the SPDR Barclays Capital High Yield Bond ETF is useful more measuring sentiment for riskier assets. The ETF has held up relatively well this year with a slightly positive year-to-date performance. Of course the 30-day SEC yield of 8.1% is inviting for income investors. WisdomTree Asia Local Debt ETF ALD: We've been fans of the WisdomTree Asia Local Debt ETF for a while now, noting it has been one of the best new ETFs of 2011 across any asset class in terms of attracting assets. That number is now up to almost $394 million and ALD's expense ratio of 0.55% is one of the lower ones you'll find among actively managed ETFs. WisdomTree Emerging Markets Local Debt ETF ELD: Like ALD, the WisdomTree Emerging Markets Local Debt ETF has been a stalwart among new ETFs in terms of attracting AUM (the ETF has crossed the $1billion mark). And like ALD, ELD is another compelling pick to take advantage of credit ratings upgrades in the emerging markets and for investors to have some non-dollar denominated assets in their portfolios. PowerShares Senior Bank Loan Portfolio BKLN: As we said earlier this week BKLN is only down 1.3% year-to-date and it features a yield over 5.2%. With almost $175 million in AUM, BKLN has proven to be one of 2011's best new ETFs across any sector or asset class in terms of attracting new investments. It could be a buy above $24. PowerShares Chinese Yuan Dim Sum Bond ETF DSUM: There are several competitors in this arena, none of which are off to particularly strong starts. DSUM is up to almost $6 million in AUM since its September debut and that's bad. The dim sum bond market is booming and saw over $21 billion in new issues in third quarter, so maybe DSUM will shake off the rookie ETF jitters and be worth owning in 2012. PowerShares Fundamental High Yield Corporate Bond ETF PHB: Investors probably won't want to own JNK and the PowerShares Fundamental High Yield Corporate Bond ETF at the same time, so we're presenting PHB as an alternative to JNK. PHB's 30-day SEC yield is decent at 5.78% and the ETF offers double-digit exposure to five different sectors with a sixth getting a weight of 9.94%. iShares iBoxx $ Invest Grade Corporate Bond ETF LQD: For those that want investment grade corporates, LQD is the dominant ETF in this space. Low interest rates favor the issuers that call this ETF home, but the ETF is up 8% year-to-date and that's a lot better than the S&P 500. Plus, LQD's yield of almost 4.5% is a lot better than being in a money market. iShares JPMorgan USD Emerging Markets Bond ETF EMB: One of the originals in the emerging markets bond ETF space remains one of the better ones as well despite the dollar factor. While non-dollar EM bond ETFs like the aforementioned ALD and ELD are off to stellar starts, EMB still has almost $3.4 billion in AUM, a solid year-to-date performance and a yield of nearly 5%. iShares Emerging Markets Local Currency Bond ETF LEMB: The iShares answer to ELD made its debut in October and has raked in almost $29 million in AUM in that time, but it's got a long way to go threaten ELD. Plus, the iShares offering has a higher expense ratio at 0.6% compared to 0.55% for comparable WisdomTree ETF. Market Vectors LatAm Aggregate Bond ETF BONO: BONO is down year-to-date, but above $24.50, this ETF is a buy and patient investors will be rewarded as the likes of Brazil, Chile, Colombia and other major LatAm economies land more credit upgrades from the big ratings agencies. Market Vectors High-Yield Muni ETF HYD: There were some so-called experts calling for a muni bond implosion this year, but that never materialized. In fact, HYD is up over 10% and looking primed for big things in 2012. A buy above $30, HYD yields nearly 6% at the moment.