Best Investment Grade Corporate Bond ETF for the First Quarter of 2022

Exchange-traded funds (ETFs) are not exclusively for stock use. There are also bond ETFs that specifically invest in fixed income securities. Investors who want to obtain relatively low-risk corporate bonds can consider investment-grade corporate bond ETFs, which purchase high-quality bonds from companies with strong financial strength and stability. The types of companies whose bonds are included in these ETFs include Verizon Communications Inc. (VZ), Goldman Sachs Group Inc. (GS) and Wells Fargo & Co. (WFC). The credit ratings of these companies are relatively high, indicating that the risk of default is low. For this reason, these ETFs can provide strong defensive supplements to investment portfolios.

Key points

  • In the past year, the performance of the investment-grade corporate bond sector has significantly lagged the US stock market.
  • The best investment-grade corporate bond ETFs for the fourth quarter of 2021 are LQDI, IGBH and LQDH.
  • The highest holdings of the first and third ETFs are iShares iBoxx $ investment-grade corporate bond ETF stocks, and the highest holdings of the second fund are iShares 10+ year investment-grade corporate bond ETF stocks.

There are 63 different investment-grade corporate bond ETFs traded in the United States, excluding reverse and leveraged ETFs and funds with assets under management (AUM) of less than US$50 million. The investment-grade corporate bond sector as measured by the Bloomberg US Corporate Bond Index has significantly underperformed the US stock market in the past 12 months, with a total return of -0.2%, while the S&P 500 has a total return of 28.8%, as of 2021 December 7th. Based on the performance of the past year, the best-performing investment-grade corporate bond ETF in the first quarter of 2022 is the iShares Inflation Hedged Corporate Bond ETF (LQDI). We studied the following three best investment-grade corporate bond ETFs. All figures are as of December 7, 2021.

  • Performance over one year: 8.4%
  • Expense rate: 0.18%
  • Annual dividend yield: 2.32%
  • Three-month average daily volume: 34,918
  • Assets under management: US$90.9 million
  • Date of Establishment: May 8, 2018
  • Issuer: BlackRock Financial Management

LQDI tracks the BlackRock Inflation Hedged Corporate Bond Index, which aims to reduce the inflation risk of investment-grade corporate bond portfolios. ETFs seek to manage inflation risks while providing income from investment-grade bonds. It invests in investment-grade corporate bonds with remaining maturities ranging from less than one year to more than 20 years. However, its biggest exposure is bonds with a remaining maturity of 20 years or more.

The largest sectoral configuration of LQDI is bonds issued by companies that provide banking services, followed by bonds issued by consumer staples companies and bonds issued by communications companies. The fund provides exposure to these bonds by holding shares in iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), while reducing inflation risks through the use of swap contracts. The top three held by LQD are bonds issued by investment banking and financial services holding company JP Morgan Chase & Co. (JPM); Bank of America (BAC), an investment bank and financial services holding company; and AT&T Inc. (T ), a communications and digital entertainment holding company.

  • Performance over one year: 4.5%
  • Expense rate: 0.16%
  • Annual dividend yield: 2.06%
  • Three-month average daily volume: 115,745
  • Assets under management: US$840.2 million
  • Date of establishment: July 22, 2015
  • Issuer: BlackRock Financial Management

IGBH tracks the BlackRock Interest Rate Hedged Long-Term Corporate Bond Index, which aims to reduce the interest rate risk of investment-grade corporate bond portfolios with a remaining maturity of more than ten years. ETF invests in corporate bonds with investment grade ratings and remaining maturities greater than 10 years. Most of the assets it holds have a remaining maturity of more than 20 years, and the fund’s largest exposure is bonds issued by companies operating in the consumer staples industry.

IGBH also adopts a rule-based strategy to reduce interest rate risk. It implements this strategy by holding shares in the iShares 10+ year investment grade corporate bond ETF (IGLB) and short positions in interest rate swaps. The top three bonds held by IGLB include those issued by the following companies: AT&T; Verizon Communications, a communications, information and entertainment holding company; and Comcast Corporation (CMCSA), a global media and technology group.

  • Performance over one year: 3.2%
  • Expense rate: 0.24%
  • Annual dividend yield: 1.82%
  • Three-month average daily volume: 45,748
  • Assets under management: US$746 million
  • Date of establishment: May 27, 2014
  • Issuer: BlackRock Financial Management

LQDH tracks the BlackRock Interest Rate Hedged Corporate Bond Index, which aims to reduce the interest rate risk of investment-grade corporate bond portfolios. ETFs follow a rule-based strategy that aims to reduce interest rate risk by establishing short positions in interest rate swaps. It invests in corporate bonds with remaining maturities ranging from less than one year to more than 20 years. However, its biggest exposure is bonds with a remaining maturity of 20 years or more.

Currently, LQDH’s largest industry configuration is bonds issued by companies that provide banking services, followed by bonds issued by consumer staples companies and bonds issued by communications companies. Like LQDI, the fund itself does not invest in these bonds, but gains exposure to these bonds by holding shares in iShares iBoxx $ Investment Grade Corporate Bond ETF.

The comments, opinions and analysis expressed here are for reference only and should not be regarded as personal investment advice or advice on investing in any securities or adopting any investment strategy. Although we believe that the information provided here is reliable, we do not guarantee its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Due to the rapidly changing market and economic conditions, all comments, opinions and analyses contained in our content are presented on the date of publication and may change without notice. This material is not intended to provide a complete analysis of every important fact about any country, region, market, industry, investment or strategy.

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