Even amid a volatile year for 10-year Treasury yields and much speculation regarding when the Federal Reserve will finally lower interest rates, 2023 has been kind to investment-grade corporate bonds and related ETFs.
With 2024 right around the corner, advisors and investors may be mulling unique avenues for high-quality corporate debt exposure. The VanEck Moody’s Analytics BBB Corporate Bond ETF (MBBB) could be an ETF to consider. The fund, which turned three years old earlier this month, arguably deserves more attention from market participants evaluating corporate bond ETFs.
After all, MBBB is outpacing the widely observed Markit iBoxx USD Liquid Investment Grade Index on a year-to-date basis while sporting a 30-day SEC yield that’s 22 basis points in excess of that benchmark.
Corporate Bond ETF MBBB Excellence Not New
Experienced investors know that investing isn’t a popularity contest and that’s particularly true with ETFs. The biggest ETFs by assets under management aren’t always the best in terms of performance in their respective asset classes. Same goes for the funds that generate the most press and internet chatter.
MBBB is a case study in those assertions. The VanEck ETF, which tracks the MVIS Moody’s Analytics US BBB Corporate Bond Index, doesn’t get attention comparable to older, larger corporate bond ETFs. However, on a year-to-date basis, just six of the 40 funds in that ETF category have outpaced MBBB. Over the past year, MBBB has topped all of its rivals in that group.
For advisors with an emphasis on long holding periods, which is appropriate when considering fixed income strategies, it is worth noting that since MBBB debuted just over three years ago, it ranks in the first quartile among all corporate bond ETFs over that period.
What’s interesting and commendable regarding MBBB’s recent strength is that it has been accrued against the backdrop of income investors being increasingly concerned about credit and default risk. As its name implies, MBBB focuses on corporate bonds with BBB ratings, which can include some issues at the lower end of investment-grade territory.
However, the ETF’s underlying index defrays some of the risk associated with those bonds by focusing on issues with low downgrade probabilities. That advantage comes with the benefit of the index also attempting to identify corporate debt trading at attractive valuations, confirming investors don’t have to pay up to embrace MBBB’s perks.
MBBB holds 194 bonds with an effective duration of 6.55 years.
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