Last week, VettaFi hosted a virtual three-hour event, the Fixed Income Symposium, with nearly 1,400 registrants and approximately 750 live attendees. While attendees stayed on for an average of 2 hours and 16 minutes, some people missed the engaging discussion that took place across the nine sessions about Treasuries, CLOs, active management, and more. Thankfully, in addition to catching the whole event, registrants can choose to listen to segments. Just use this link.
Attendees were asked numerous questions during the Symposium, and a common theme in their responses led discussions about investment-grade corporate bonds.
Advisors Favor Investment-Grade Corporate Bonds
When we kicked off the fourth session, titled “Moving Up the Yield Curve,” VettaFi asked, “Which fixed income investment style do you see making the largest contribution in the next 12 months?” The most popular response (44%) was investment-grade corporate bonds, nearly double the response for U.S. Treasuries and even further ahead of money market funds or high yield corporate bonds. One of the expert speakers agreed.
“There are a lot of high-quality bonds that offer significant yield today,” explained Cary Fitzgerald, managing director at JPMorgan Asset Management at the event. “We see global banks as the best bet within investment-grade fixed income.”
Even With More Choices, Investment-Grade Was in Focus
Later in the symposium, many joined us for the eighth session, titled “Multi-sector Bond Investing: Where do the Rewards Outweigh the Risks.” VettaFi asked attendees, “Where do you think the best investment opportunities are in fixed income?” (While the question was similar to the one we asked nearly an hour and half earlier, the choices we offered were different, as was the pool of respondents.)
With 41% of the results, investment-grade corporates were again the top choice, ahead of mortgage-backed securities, non-U.S. debt, Treasuries, and high yield corporates.
“There’s this tug of war between yield and spread,” Jason Greenblath, a senior portfolio manager at American Century, said during the panel discussion. “Credit spreads today reflect a more benign environment for risk taking.”
Leading Corporate Bond ETFs
With advisor demand for investment-grade corporate bond ETFs, we probably should highlight that they are not all the same.
For example, the Vanguard Intermediate-Term Corporate Bond ETF (VCIT) manages $40 billion in assets. The ETF’s average duration is 6.2 years, and 52% of assets were in BBB-rated bonds, the lowest rung of investment-grade. VCIT has an expense ratio of 0.04%, and the fund was up 4.2% year-to-date through July 26.
Meanwhile, the iShares iBoxx Investment Grade Corporate Bond ETF (LQD) manages $37 billion in assets. LQD’s average duration is 8.5 years, meaning it is more sensitive than VCIT to interest rate movements. However, LQD has just 45% of assets in BBB-rated bonds and more in AA-rated securities than VCIT, making it more creditworthy. The iShares ETF has a net expense ratio of 0.14% and had achieved a 4.6% total return thus far in 2023.
Beyond these two ETFs, advisors have lots of high-quality corporate bond ETFs to consider. The list includes funds that take on duration risk notably different from VCIT and LQD, as well as actively managed products that are more selective in the security inclusion. I think it is a list worth reviewing as you catch the replay of the Fixed Income Symposium.
For more news, information, and analysis, visit the Fixed Income Channel.