Risk Management with Corporate Bond ETFs
April 30th 2012 at 12:15pm by Tom Lydon
Investors seeking exposure to companies with the highest credit ratings have the option of putting capital into bonds issued by these healthy businesses. A good way to minimize the risk of investing in these bonds is to buy an exchange traded fund that includes several companies.
“The fundamentals of U.S. corporations have been steadily improving. Companies have reduced debt, refinanced loans at lower interest rates, and seen their earnings improve. With companies’ improved balance sheets, the income from an ETF such as iShares iBoxx $ Investment Grade Corporate Bond (NYSEArca: LQD) should be stable for the foreseeable future. The current yield on this fund is attractive, especially when compared with similarly tenured Treasury bond investments,” Timothy Strauts for Morningstar wrote in a recent analyst report. [Bond ETF Ideas for Higher Yields]
Investing for income these days means that there is more risk to endure in order to get a decent return. Bonds issued by the most financially sound companies are a good option for investors to gain the yield they are looking for, as the yield on U.S. Treasury bonds are about 2%, reports Matt Krantz for USA Today. [ETF Spotlight: High Yield Bonds]
There is a degree of risk management that investors can use when investing in this area of the market. Krantz explains that the most conservative investors would like the iShares Aaa-A Rated Corporate Bond Fund (NYSEArca: QTLA). With a yield of 2.7%, and a 10- year maturity timeline, QTLA beats the yield of a 10-year T-note.
The aforementioned iShares iBoxx $ Investment Grade Corporate Bond (NYSEArca: LQD) is currently yielding 3.5% with bonds that mature in about 12 years. The fund is sensitive to interest rate risk and inflation can also have a negative impact upon it. [Why Some Advisors Like Corporate Bonds]
Other corporate bond ETFs:
- iShares Barclays Credit Bond (NYSEArca: CFT) yields 3.69%
- Vanguard Intermediate-Term Corporate Bond Index ETF (NYSEArca: VCIT) yield 3.40%
- PIMCO Investment Grade Corporate Bond Index ETF (NYSEArca: CORP) yields 2.9%
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.