Still Own the ‘Safe’ Bond Fund That Lost 13% in 2022? These 3 ETFs Do the Job It Was Supposed To

The iShares Core U.S. Aggregate Bond ETF (AGG) declined by around 12.4% in 2022, mirroring the 13% loss that still troubles retired investors. This drop was largely due to duration risk, where longer maturity bonds lost value as the Federal Reserve aggressively raised interest rates. To mitigate this risk, three ETFs stand out: the WisdomTree Floating Rate Treasury Fund (USFR), the Janus Henderson AAA CLO ETF (JAAA), and the Vanguard Short-Term Inflation-Protected Securities ETF (VTIP).

USFR employs 2-year U.S. Treasury Floating Rate Notes with coupons that reset weekly based on the 13-week T-bill auction. This weekly resetting ensures the fund's returns rise with interest rates, unlike the declining value seen in AGG. USFR gained nearly 2% in 2022 and is up 2.6% year-to-date, charging a low 0.15% expense ratio.

JAAA invests in the top-rated (AAA) senior tranches of collateralized loan obligations (CLOs). As these tranches sit at the top of the CLO capital stack, they receive payments before other investors, providing a steadier income stream. JAAA mirrored USFR's performance in 2022 with a modest 0.49% gain, charging a slightly higher 0.20% expense ratio.

VTIP tracks the Bloomberg U.S. 0-5 Year TIPS index. These bonds adjust their principal with the Consumer Price Index (CPI), ensuring income and net asset value (NAV) growth in line with inflation. Though VTIP fell by 2.9% in 2022, it still outperformed AGG by about four times. With a 0.03% expense ratio, VTIP offers a real yield of 2.18%, making it a solid inflation hedge.