Investors that are seeking income have to balance their investment decision between increasing risk to gain yield or accepting a lower payoff. Certain exchange traded funds from different fixed income asset classes are offering decent yields.
“In assessing these two options, investors must start with their own tolerance for risk and investment objectives. For those willing to take on additional risk, I continue to advocate reducing duration risk, for which investors are not being adequately compensated, and modestly increasing exposure to spread products, Russ Koesterich, CFA, wrote on the iShares blog.
Investment grade U.S. corporate debt and emerging market bonds are two fixed income asset classes that lagged in 2011, but are offering attractive yields with some risk.
Good values can be found from the Baa class of bonds, based on Moody’s Corporate Bond Index. The iShares iBoxx $ Investment Grade Corporate Bond Fund (NYSEArca: LQD) gives exposure to investment grade U.S. corporate debt during this time of healthy corporate balance sheets lowered government credit quality, reports Koesterich. [Some ETFs to Ride Out Market Volatility]
LQD has about $20.2 billion in AUM and an expense ratio of just 0.15%. The ETF features a distribution yield of almost 4.09%. The fund is up 3.2% year-to-date.