The King of Corporate Bond ETFs

Among exchange traded funds offering exposure to investment-grade corporate debt, the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD) is the king. LQD, which recently turned 16 years old, has $34.18 billion in assets under management.

That makes LQD the largest corporate bond ETF and one of the largest fixed income ETFs of any variety. The ETF holds over 1,900 bonds and tracks the Markit iBoxx USD Liquid Investment Grade Index.

LQD “is a solid option for market-cap-weighted exposure to U.S. dollar-denominated debt with more than three years remaining until maturity. This exclusion of short-term bonds gives the fund greater interest-rate risk than most of its actively managed peers in the corporate bond Morningstar Category,” according to Morningstar.

Inside LQD

Temping yields and improved balance sheets at large U.S. companies are among the reasons why some financial advisors are favoring exchange traded funds that invest in investment grade corporate bonds. LQD has a duration of 8.45 years.

Recently, concerns have emerged about credit ratings downgrades for some corporate bonds and how that affects the broader market. For its part, about 89% of LQD holdings are rated A or BBB.

“The other noteworthy shift in investment-grade corporate bonds is a deterioration in overall quality. In 2007, 27 percent of the total value of bonds issued by companies in the Standard & Poor’s 500-stock index were rated BBB, the lowest rung of investment grade. Today, 50 percent of the market value of S.&P. 500 bonds have that rating,” according to the New York Times.