As measured by the widely followed Markit iBoxx USD Liquid Investment Grade Index, it’s been a solid year for investment-grade corporate debt. Many market observers speculating that more of the same or even better things are in store in 2025. So advisors are evaluating avenues for exposure to this corner of the bond market.
Broad-based exchange traded funds are effective tools for investment-grade corporate bond allocations. But many of the plain vanilla funds in the category are just that: plain vanilla. And those products don’t have clear mechanisms for limiting valuation risk. Enter the VanEck Moody’s Analytics IG Corporate Bond ETF (MIG) and the VanEck Moody’s Analytics BBB Corporate Bond ETF (MBBB).
Put simply, both VanEck ETFs are designed to provide exposure to attractively valued credit opportunities that are at reduced risk of ratings downgrades. Those are two key factors to consider when investing in corporate bonds. But they’re rarely points of emphasis in standard ETFs in the category. MBBB and MIG flip that script in positive fashion.
Corporate Bond ETFs MBBB & MIG Have Benefits
In the equity space, value investing has lagged growth for a surprisingly lengthy period of time. That’s the result of leadership by mega-cap growth stocks. However, that phenomenon isn’t germane to the corporate bond market. Value remains relevant there. And that could signal opportunity with MBBB and MIG. Indeed, there are perks associated with these ETFs’ valuation-focused methodology.
“Attractively valued bonds represent both attractive income potential as well as upside price potential as market spreads converge to fair value. A bond with a positive excess spread versus its fair value spread represents a value opportunity. Similarly, avoiding bonds that exhibit unattractive levels of excess spread provides the potential to outperform the broad market,” according to VanEck research.
In addition to value, MBBB and MIG are appealing due to the Moody’s credit risk models that underpin these ETFs’ indexes. That’s the same risk assessment model that’s used by many of the world’s biggest banks, insurance companies, government institutions and asset managers. Said another way, MBBB and MIG take institutional-quality risk assessment and make it accessible to all types of investors. That’s something for investors to consider because default expectations can affect corporate bond prices.
“Looking at the one-year expected default frequency, a metric estimating the likelihood of the company defaulting over the following 12 months, both indices display lower levels of default risk. Although the risk of default in investment grade bonds is generally very low, even these small differences are reflected in credit spreads and total returns,” added VanEck.
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