In order to avoid a possible liquidity crisis, investors can opt for more liquid exchange-traded funds that allocate capital into investment-grade debt issues.
1. iShares 1-3 Year Credit Bond ETF (NASDAQ: CSJ)
CSJ tracks the investment results of the Bloomberg Barclays U.S. 1-3 Year Credit Bond Index where 90 percent of its assets will be allocated towards a mix of investment-grade corporate debt and sovereign, supranational, local authority, and non-U.S. agency bonds that are U.S. dollar-denominated and have a remaining maturity of greater than one year and less than or equal to three years–this shorter duration is beneficial during recessionary environments.
2. Xtrackers Investment Grade Bond Interest Rate Hedged ETF (BATS: IGIH)
IGIH seeks investment results that track the performance of the Solactive Investment Grade Bond – Interest Rate Hedged Index where a portion IGIH’s total assets will reside in long positions in U.S. dollar-denominated investment-grade corporate bonds. As in the case of IGHG, this strategy effectively eliminates exposure to riskier bonds with fund allocations in investment-grade issues.
3. ProShares Investment Grade—Interest Rate Hedged (BATS: IGHG)
IGHG tracks the performance of the Citi Corporate Investment Grade (Treasury Rate-Hedged) Index with long positions in investment grade corporate bonds issued by both U.S. and foreign domiciled companies. This is particularly important during market downturns when the propensity for a company to default on its debt is higher. As such, IGHG focuses on investment-grade issues to reduce credit risk.
Related: Paul Tudor Jones: Next Recession will be ‘Really Frightening’
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