When buying fixed income ETFs wasn’t enough, the Federal Reserve decided to dial up its debt purchases by adding individual corporate bonds. As such, investors may want to mirror the Fed’s actions by adding fixed income ETFs from varying types of debt.
The Fed “unveiled changes to its $750 billion emergency corporate lending facility on Monday to make it easier for credit to flow to a broad-base of companies during the coronavirus pandemic,” according to a MarketWatch report.
The report added that the Fed “would start buying eligible corporate bonds included in standard indexes used in the secondary market, where debt trades on the open market once it’s issued, rather than just buying corporate bond exchange traded funds.”
“The big difference is that this is going to allow them to buy bonds without companies having to certify any sort of eligibility,” said David Del Vecchio, a portfolio manager at PGIM Fixed Income, in an interview. “This new index-based approach really kind of changes everything.”
As the Fed looks to diversify its debt holdings, here are three funds to consider that have a mix of environmental, social, and governance (ESG) debt, high yield and short duration:
- Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF (ESCR): seeks investment results that correspond generally to the performance, before fees and expenses, of the Bloomberg Barclays MSCI US Corporate Sustainability SRI Sector/Credit/Maturity Neutral Index. The index generally aims to keep the broad characteristics of its parent index, the Bloomberg Barclays US Corporate Index (an investment grade corporate bond universe), resulting in a broad investment grade fixed income market exposure with ESG aspects.
- Xtrackers USD High Yield Corporate Bond ETF (HYLB): seeks investment results that correspond generally to the performance, before fees and expenses, of the Solactive USD High Yield Corporates Total Market Index. The index comprised of U.S. dollar-denominated high yield corporate bonds will concentrate its investments in a particular industry or group of industries to the extent that its underlying index is concentrated.
- Xtrackers Short Duration High Yield Bond ETF (SHYL): seeks investment results that correspond generally to the performance, before fees and expenses, of the Solactive USD High Yield Corporates Total Market 0-5 Year Index. The fund will invest at least 80% of its total assets (but typically far more) in component securities of the underlying index. The underlying index is designed to track the performance of short-term publicly issued U.S. dollar-denominated below investment grade corporate debt.
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