The PDF version of the August issue of ETFInvestor is now available for download.

The iPad version will be available in approximately 3 business days.

In the context of portfolio construction, the best thing about bonds is that they are not stocks. Their cash flows are generally far more certain, their lives finite, their terms transparent, and their rank in the pecking order of companies’ capital structures higher than common equity. All these attributes lend themselves to bonds being less than perfectly correlated with stocks, making them good diversifiers of equity risk. But not all bonds are created equal. Their diversification potential occupies a spectrum from great to lousy. The best diversifiers are the most boring.

As stocks continue to chug along and interest rates have lifted off from their recent lows and could climb higher still, now is a good time to revisit bonds’ role in a diversified portfolio. In this month’s cover, I look at the degrees of diversification potential offered by various segments of the bond market. I also take a peek at recent trends in exchange-traded fund flows among the largest categories of fixed-income ETFs to assess how investors are positioning themselves to cope with the confluence of full stock market valuations and the possibility of further interest-rate increases.

Also in this issue:

• Morningstar’s Director of Global Manager Research, Jeffrey Ptak, shares his thoughts on the launch of Fidelity’s new zero-fee index mutual funds.
• Alex Bryan raises the bar for active bond-fund managers.
• Phillip Yoo discusses how bond investors have been gravitating to ETFs as a source of liquidity.
• Phillip profiles iShares Floating Rate Bond ETF FLOT, which carries a Morningstar Analyst Rating of Bronze.
• Brian Moriarty shares his analysis of Neutral-rated SPDR Blackstone/GSO Senior Loan ETF SRLN.
• In this month's Sector Snapshot, I share our equity analysts’ take on the stocks that moved the market in June.

You can download this month's issue here:

http://etf.morningstar.com/Newsletter.aspx?download=currentIssue

Best,

Ben Johnson, CFA