A Mammoth ETF For Cost-Efficient Corporate Bond Exposure

The iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD) is the largest exchange traded fund dedicated to investment-grade corporate debt and remains the go-to choice for many investors looking to asset this asset class.

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.

“There is a lot to like about this fund, from its durable cost advantage to its broadly diversified market-cap-weighted portfolio that approximates the composition of the U.S.-dollar investment-grade corporate-bond market,” said Morningstar in a research note. “However, the fund’s exclusion of bonds with less than three years until maturity gives it more interest-rate risk than most of its peers and prevents it from fully representing the opportunity set.”

‘LQD’ ETF Details

The $33.55 billion LQD holds 1,957 bonds. LQD has an effective duration of 8.37 years and a weighted average maturity of 12.68 years.

“Reflecting the composition of the market, the fund tilts toward bonds at the lower end of the investment-grade credit spectrum. Nearly 90% of the portfolio is invested in bonds rated A and BBB, so it does have a fair bit of exposure to spread risk. But like most investment-grade funds, interest-rate risk is the primary driver of the fund’s returns,” according to Morningstar.

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