CPI seeks investment results that correspond to the IQ Real Return Index–a “fund of funds” that invests its net assets in the investments incorporated within the underlying index. Fixed-income investors using corporate bond ETFs are subject to duration risk tied to interest rates, but in an economic environment where inflation is also rising, an ETF like CPI would be of benefit.
One thing to note is that corporate bond ETFs with higher-yielding debt holdings that feature a floating rate component are also subject to credit risk as the bonds are typically tied to companies that are below investment-grade. This poses a risk to investors, particularly since companies tied to below investment-grade debt have a higher propensity to default.
As such, actively-managed funds can expose an investor to an investment-grade corporate bond ETF like the iShares Interest Rate Hedged Corp Bd ETF (NYSEArca: LQDH). LQDH seeks to mitigate the interest rate risk of a portfolio composed of U.S. dollar-denominated, investment-grade corporate bonds without being tied to an underlying index. LQD is actively-managed and seeks to invest in one or more underlying funds that principally invest in investment-grade bonds, and in U.S. Treasury securities (or cash equivalents).
When compared to the iShares Core US Aggregate Bond ETF (NYSEArca: AGG), LQDH has been outperforming AGG thus far this year–a 0.61% gain YTD for LQDH as opposed to a loss of 1.11% for AGG.
With a plethora of fixed-income strategies at their disposal, these actively-managed funds are able to capitalize on opportunities that their passively-managed peers cannot.
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