State Street's SPLB or iShares' TLT: Which Long-Term Bond ETF Should Investors Choose?

State Street SPDR Portfolio Long Term Corporate Bond ETF (NYSEMKT:SPLB) offers low-cost exposure to corporate credit, while iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) provides a highly liquid vehicle for long-dated U.S. government debt.

Investors seeking long-duration bond exposure often choose between Treasuries and corporate credit. While both funds are sensitive to interest rate movements, they carry different risk profiles. The SPDR fund provides diversified corporate credit exposure, whereas the iShares fund acts as a pure play on long-term government interest rates.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The State Street fund is the more affordable option with an expense ratio of 0.04%, compared to 0.15% for the iShares fund. Furthermore, SPLB offers a higher trailing-12-month distribution yield, resulting in a 0.78 percentage point yield gap over TLT.

Performance & risk comparison

What's inside

State Street SPDR Portfolio Long Term Corporate Bond ETF tracks the Bloomberg U.S. Long Term Corporate Bond Index, focusing on investment-grade, fixed-rate corporate bonds with maturities of at least 10 years. With 2,941 holdings, the fund is highly diversified, and no single position exceeds 0.62% of the portfolio. Launched in 2009, the State Street SPDR Portfolio Long Term Corporate Bond ETF has paid $1.20 (trailing 12-month total) per share over the trailing 12 months, which on its recent ~$22.26 share price works out to a 5.40% yield.

iShares 20+ Year Treasury Bond ETF provides targeted exposure to U.S. Treasury securities with maturities extending beyond two decades. The portfolio is concentrated in 46 holdings, exclusively consisting of long-term government debt. Launched in 2002, the iShares 20+ Year Treasury Bond ETF has paid $3.90 (trailing 12-month total) per share over the trailing 12 months, which on its recent ~$85.51 share price works out to a 4.60% yield.

For more guidance on ETF investing, check out the full guide at this link.

What this means for investors

Long-term bond investing requires accepting one uncomfortable truth: The longer the maturity, the more sensitive the fund is to interest rate moves. Both SPLB and TLT exist at the far end of the maturity spectrum, which is why both suffered during the rate-hiking cycle of 2022 through 2024. The difference is in what they hold and how they have recovered.

Because SPLB spreads across more than 3,000 investment-grade corporate bonds, it delivers a higher yield than TLT at a lower cost. It has outperformed TLT over both the past year and the past five years, with a milder drawdown along the way. Corporate bonds carry credit risk that Treasuries do not, but SPLB's diversification across thousands of issuers reduces the impact of any single company running into trouble.

TLT holds just 46 U.S. Treasury bonds, all backed by the federal government, with zero credit risk. Its massive asset base and institutional following make it one of the most liquid bond funds there is, which is why active traders and institutions reach for it first. For buy-and-hold investors focused on income, SPLB's lower cost, higher yield, and stronger historical performance make it the more practical long-term choice.

Sara Appino has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.