ETF Spotlight on iShares iBoxx Investment Grade Corporate Bond (NYSEArca: LQD), part of an ongoing series.
Assets: $14.3 billion.
Objective: The iShares iBoxx Investment Grade Corporate Bond Fund tries to reflect the performance of the corporate bond market based on the iBoxx $ Liquid Investment Grade Index.
Holdings: Top bond holdings include: AT&T (NYSE: T) 0.83%, Wells Farbo & Co. (NYSE: WFC) 0.78%, Wal-Mart (NYSE: WMT) 0.72% and JPMorgan Chase (NYSE: JPM) 0.70%.
What You Should Know:
- BlackRock‘s ETF unit iShares is the fund provider.
- LQD has an expense ratio of 0.15%.
- LQD has a yield of 4.61%.
- The fund is down 0.63% over the past month, up 0.52% over the last three months and up 4.60% year-to-date.
- Sector allocations include: Banks 26.96%, Oil & Gas producers 8.35%, Fixed Line Telecom 8.28%, Media 7.77%, Pharmaceuticals & Biotech 5.98%, Financial Services 5.52%, General Retailers 4.03%, Beverages 2.99%, Software & Computer services 2.84%, Food Producers 2.76% and other 24.53%.
- “Investors holding this fund are generally looking for a relatively safe and consistent income stream,” according to Morningstar analyst Timothy Strauts. “The other reason to own this fund is that you think that the medium-term corporate-bond market is generally underpriced and that you expect bonds to appreciate in value.”
- “Companies have reduced debt, refinanced loans at lower interest rates, and seen their earnings improve. With companies’ improved balance sheets, the income from LQD should be stable for the foreseeable future,” Strauts added.
The Latest News:
- Since early 2009, LQD has performed “exceptionally well,” writes Eric Parnell at SeekingAlpha. “It has remained consistently in an upward sloping trend line and continues to hold support at its 50-day and 200-day moving average. But the fact that financials make up 38% of the LQD, including 9% from European financials, puts this area of the market at risk given ongoing concerns over another global financial contagion. Some recent data trends suggest some strain may finally be affecting this area of the market.”
- The corporate bond ETF has fallen below its 50-day moving average as investors worry about the health of the economy.
- LQD broke its August low on Wednesday, according to StockCharts.
- The spread between corporate and Treasury bonds, a measure of high-grade bond investment risk, is widening to its highest point so far this year, reports Timothy Sifert for Reuters.
- Debt investors still favor corporate America’s conservative business strategies and record amount of cash.
- “Despite increased risk aversion and broader economic weakness, credit fundamentals look pretty strong,” remarked Shobhit Gupta, credit strategist at Barclays Capital.
For past stories in this series, visit our ETF Spotlight category.