Over 88% of LQD’s holdings are rated either A or BBB. The ETF’s effective duration is 8.5 years. Duration measures a bond’s sensitivity to changes in interest rates.
“The portfolio’s exclusion of shorter-dated securities increases the fund’s interest-rate-risk,” according to Morningstar. “Its duration of 8.5 years, as of October 2017, was approximately two years longer than the category average. This duration implies that if the rate curve abruptly experiences a parallel shift by one percentage point, this fund could lose approximately 8.5% of its value.”
Investors have added $10.7 billion in new assets to LQD this year, good for the best total among all bond ETFs. Only five ETFs have larger 2017 inflows than LQD.
For more information on corporate debt, visit our corporate bonds category.
Tom Lydon’s clients own shares of LQD.