As summer draws to a close, it’s that time again for students to head back into the classrooms and hit the books. For fixed-income investors, it’s business as usual as the quest for profitability in the bond markets is akin to a vacationless, year-round curriculum.
Fortunately, there are no exam requirements for investors to make the grade–investment-grade, that is, when it comes to looking for fixed-income options to help hedge credit risk with investment-grade bond ETFs. As such, here are five fixed-income ETFs that are top of the class.
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. ProShares Investment Grade—Intr Rt Hdgd (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.
3. Xtrackers Inv Grd Bd Intst Rt Hdg 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.
4. SPDR Blmbg Barclays Inv Grd Flt Rt ETF (NYSEArca: FLRN)
FLRN seeks to provide investment results that mimic the performance of the Bloomberg Barclays U.S. Dollar Floating Rate Note < 5 Years Index. At least 80 percent of assets will go towards securities that include U.S. dollar-denominated, investment grade floating rate notes. This floating rate component can take advantage of short-term rate adjustments by the Federal Reserve, while at the same time, protect the investor against credit risk with investment-grade issues and a duration of less than five years.
5. iShares iBoxx $ Invmt Grade Corp Bd ETF (NYSEArca: LQD)
LQD seeks to track the investment results of the Markit iBoxx® USD Liquid Investment Grade Index composed of U.S. dollar-denominated, investment-grade corporate bonds. LQD allocates 95 percent of its total assets in investment-grade corporate bonds to mitigate credit risk.
Related: Paul Tudor Jones: Next Recession will be ‘Really Frightening’
Cramer’s charts suggest it’s still worth investing in bonds from CNBC.
For more trends in fixed income, visit the Fixed Income Channel.