Investment-Grade Bond ETFs Aren't As Popular As They Use to Be

Investment-grade debt and bond-related exchange traded funds just can’t catch a break this year.

U.S. investment-grade debt has experienced one of the worst performance of any major sector of the fixed-income asset class so far this year, CNBC reports.

The iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD) declined 4.7% year-to-date, compared to the 2.5% dip in the Bloomberg Barclays U.S. Aggregate Bond Index.

ETF investors have also been avoiding the asset category, pulling some $3.5 billion from LQD so far this year, according to XTF data.

The Federal Reserve’s rising interest rates have been a main contributing factor in the downfall of investment-grade bonds this year. As the Fed hikes the short-term fed funds rate, longer-duration investment-grade bonds with historically low yields have appeared less attractive.

“The hit from interest rates has been a big deal,” Elaine Stokes, a fixed-income strategist and manager of several bond funds at Loomis Sayles, told CNBC.