This Credit ETF Holds Steady Among Equity Market Turbulence

Equity markets incurred a big bout of volatility to start September, but some corporate credit instruments, including the Principal Investment Grade Corporate Active ETF (NYSEArca: IG), held steady.

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.

The combination of yield, investment-grade exposure, and potential for reduced volatility makes IG an alluring idea for income investors in the current market environment. With Election Day looming, IG is all the more relevant.

“Markets will not remain indifferent to the negative stock-price implications of possibly higher rates of taxation on capital gains and corporate earnings, as well as the heightened regulation of business and potential anti-trust actions against the high-tech giants,” notes Moody’s Investors Service. “Worry over a potential increase in the capital-gains tax rate may help to explain the heavy selling of shares that have posted substantial price appreciation over the recent past.”

IG Intricacies

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.

“Most do not buy corporate bonds for potential capital gains. In part that may help to explain why the high-yield bond market did not reflect the high-anxiety implicit to September 8’s 31.5-point close for the VIX. Granted that the high-yield CDX index, or the cost of insuring $10,000 of high-yield CDX debt, rose from September 2’s $350 to September 8’s $384, the latter was still less than its $394 month-long average of August 2020,” according to Moody’s.

IG 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.

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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.