ETF Spotlight on iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD), part of an ongoing series.

Assets: $18.5 billion.

Objective: The iShares iBoxx $ Investment Grade Corporate Bond Fund tries to reflect the performance of the iBoxx $ Liquid Investment Grade Index, which holds U.S. dollar-denominated liquid investment grade corporate bond market.

Holdings: Top holdings include: BlackRock FDS III 0.7%, AT&T Inc 0.7%, Wells Fargo & Co. 0.6%, AT&T Inc 0.6% and Wall-Mart Stores 0.6%.

What You Should Know:

  • BlackRock’s iShares ETF division sponsors the fund.
  • LQD has an expense ratio of 0.15%.
  • The fund has 747 holdings and the top 10 components make up 5.8% of the fund.
  • The bonds have an average maturity of 11.9 years with an average coupon rate of 5.4%.
  • The majority of the bond components have a credit rating between A/A2 and A-/A3.
  • Sector allocations include: financials 35.9%, consumer staples 12.4%, oil & gas 10.5%, telecommunications 9.0%, consumer goods 8.6%, health care 7.9%, technology 5.6%, basic materials 3.4%, industrials 3.4%, utilities 1.5% and other 2.0%.
  • LQD has a distribution yield of 4.1%.
  • The fund is up 2.2% over the past month, up 1.9% over the last three months and up 12.3% over the past year.
  • The ETF is 3.7% above its 200-day exponential moving average.
  • “Corporate spreads can widen, inflicting losses on funds like this one, due to factors such as liquidity and changing opportunities in other areas of the fixed-income market,” according to Timothy Strauts, Morningstar analyst. “Like all bond funds in general, this ETF is subject to inflation and interest-rate risk. If inflation or interest rates rise, the value of the underlying bonds will decline.”
  • “Companies have reduced debt, refinanced loans at lower interest rates, and seen their earnings improve,” Strauts added. “With companies’ improved balance sheets, the income from LQD should be stable for the foreseeable future.”

The Latest News:

  • Historic low yields on U.S. sovereign debt and greater investor demand attracted corporate issuers, who brought over $16 billion in new company debt issuance to market Wednesday, according to the Dow Jones Newswire. [U.S. ETFs See More Inflows]
  • Companies are selling debt at the cheapest rates ever. “It’s a pretty attractive environment right now,” Mark Oline, global head of corporates at Fitch Ratings, said in the article.
  • Moody’s Investor Service stated that defaults from non-financial companies increased in the fourth quarter due to tighter credit conditions and a weak economy, but default rates are projected to be relatively low at about 2.5%, compared to the current 1.8%.
  • “Consider adding allocations to credit-sensitive sectors, such as corporate bonds, high yield and preferred securities,” Wells Fargo Advisors said in a note, reports Michael Aneiro for Barron’s. “Many corporations have improved their balance sheets in recent years, and we think these securities currently offer better value than Treasury securities.” [ETF Focus: Corporate Bonds]

iShares iBoxx Investment Grade Corporate Bond ETF

For past stories in this series, visit our ETF Spotlight category.

Max Chen 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.