Three Unique Bond ETFs Worth Considering
As exchange-traded fund (ETF) providers shift focus to bonds, there’s a notable variety available. The time when plain index fund bonds were the only option in your ETF portfolio has passed. Here’s a look at three standout bond ETFs that take an unconventional approach.
Three Great Bond ETFs That Do Things Differently
- Janus Henderson CLO AAA ETF (ticker: JAAA)
- Vanguard Total International Bond ETF (BNDX)
- PGIM Short Duration Multi-Sector Bond ETF (PSDM)
First up is the Janus Henderson CLO AAA ETF, rated bronze. It draws interest due to its focus on secured loan obligations, or CLOs. These are actively managed pools of non-investment grade bank loans. Essentially, each CLO aggregates revenue from its loans and splits cash flow into several tranches. The higher tranches are better insulated from losses, have a lower default rate, and tend to get higher credit ratings.
The experienced management team keeps a close eye on the risk profile and quality of collateral for the underlying securities, as well as the management of the CLOs themselves. They allocate at least 90% of the assets to AAA-rated CLO tranches, while also limiting exposure to any single manager or transaction. This ETF fits into the very short bond category, where peers typically hold shares in government and corporate bonds. Nevertheless, the average CLO focus in the category is only about 4.7%, compared to JAAA’s dedicated 5.8%.
The short-term achievements of this ETF are noteworthy. It ranks in the top quartile for its category over the three years leading up to July 2025. It can be a bit more volatile than others during periods of credit stress, but historically, it has shown solid risk-adjusted returns.
Next is the Vanguard Total International Bond ETF, rated silver. This ETF offers a straightforward passive investment in international bonds but takes care to limit its exposure to Chinese bonds. China, being the second-largest bond market, can represent a significant portion—up to 20-30%—of international bond portfolios. However, its opaque regulations and liquidity issues during stressful periods prompted this ETF to restrict investments in Chinese bonds, ensuring lower transaction costs even if that means missing out on some potential gains.
If China’s bonds offer compelling returns compared to other markets, the ETF still manages to avoid those pitfalls. Since its inception in 2013, it’s performed well above the annualized category average. Much of its success can be attributed to its focus on high-quality holdings that provide stability during times of credit market stress.
Lastly, there’s the gold-rated PGIM Short Duration Multi-Sector Bond ETF, with ticker PSDM. This ETF can deliver impressive returns but comes with a more considerable range of risk and volatility.
As the name suggests, it diversifies across multiple sectors in an effort to outperform its benchmark. Instead of playing it safe, it invests in securitized bonds and corporate bonds across both developed and emerging markets.
While this strategy presents more credit risk than many competitors, this ETF’s seasoned management team has demonstrated their expertise, particularly in challenging market periods. They took steps to reduce interest rate risk as of late 2021, believing inflation trends will persist. In recent years, they’ve also shown caution regarding emerging market debt due to growth and geopolitical issues affecting those markets.
Although the ETF only launched in 2023, its mutual fund counterparts have outperformed their peers in the short-term bond category since 2014. The R6 Share Class of the mutual fund is ranked in the top quartile for the ten-year category, ending in July 2025, demonstrating justified higher volatility with better risk-adjusted returns.
For those interested, there are also three dividend stock ETFs that are worth exploring further.
