Data confirm plenty of companies are taking advantage of record-low interest rates to either refinance old debt or issue new bonds. That spate of new issuance could spotlight the benefits of active management with the Principal Investment Grade Corporate Active ETF (NYSEArca: IG).
IG is an actively managed fund, a potentially beneficial trait at a time when demographic shifts could disrupt traditional corporate bond investing. IG tries to provide current income and capital appreciation by investing in investment-grade corporate bonds rated BBB- or higher by S&P Global Ratings or Baa3 or higher by Moody’s Investors Service.
“Across all currencies, bond offerings from U.S. corporations attained record-highs for August of $119.2 billion for investment-grade and $46.6 billion for high-yield,” according to Moody’s Investors Service. “However, the blistering pace of bond issuance overstated the overall pace of borrowing by high-yield companies.”
IG Is Worth It Now
A one-two combination of tighter credit spreads and the central bank keeping rates low allowed companies to refinance current debt at lower rates or take on more debt.
IG combines bottom-up independent credit research with top-down strategy, seeking alpha through credit selection, industry rotation, and curve positioning and a forward-looking, iterative process seeks credits exhibiting stable-to-improving credit rating trajectory which may benefit from spread compression and income premiums, an approach that’s relevant in today’s corporate credit climate.
“Through August, 2020’s $25.7 billion of newly rated loans from high-yield issuers was up by 5.1% from the relatively low tally of August 2019, January-August 2020’s 30.8% year-over-year contraction by such newly rated loans (to $241 billion) differed considerably from the comparably measured 94.1% surge by U.S. corporate high-yield bond offerings (to $278 billion),” notes Moody’s.
Imay includes global exposures as its pool of fixed income securities covers foreign securities, corporate securities, securities issued or guaranteed by the U.S. government or its agencies and instrumentalities, and securities issued or guaranteed by foreign governments payable in U.S. dollars. Additionally, it may invest in other investment companies, including exchange-traded funds that invest in fixed income securities.
IG tries to provide current income and capital appreciation by investing in investment-grade corporate bonds rated BBB- or higher by S&P Global Ratings or Baa3 or higher by Moody’s Investors Service.
With an annual fee of just 0.26%, or $26 on a $10,000 investment, IG is attractively priced relative to active mutual funds in this category.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.