Best Investment Grade Corporate Bond ETFs for Q4 2022

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Exchange-traded funds (ETFs) are not reserved solely for equities. There are also bond ETFs that invest exclusively in fixed-income securities. Investors who want to access relatively low-risk corporate bonds can consider investment grade corporate bond ETFs, which buy the high-quality debt of financially strong and stable companies. Examples of the kinds of companies whose bonds are included in these ETFs include Verizon Communications Inc. (VZ), Goldman Sachs Group Inc. (GS), and Wells Fargo & Co. (WFC). These companies have high credit ratings, suggesting a low risk of default. For this reason, these ETFs can provide a strong defensive addition to investment portfolios.

Key Takeaways

  • The investment grade corporate bond sector underperformed the broad U.S. equity market over the past year.
  • The best investment grade corporate bond ETFs for the Q4 2022 are BSCN, IBDN, and BSCM.
  • The top holding of the first fund below is bonds issued by Apple Inc. while the biggest corporate bond holdings of the second and third funds is AbbVie Inc.

There are 67 distinct investment grade corporate bond ETFs that trade in the U.S., excluding inverse and leveraged ETFs as well as funds with less than $50 million in assets under management (AUM). The investment grade corporate bond sector, as measured by the Bloomberg U.S. Corporate Bond Index, has underperformed the broad U.S. equity market over the past 12 months, with a total return of -12.9% compared with the S&P 500’s total return of -2.5%, as of Aug. 17, 2022. The best-performing investment grade corporate bond ETF, based on performance over the past year, is the Invesco BulletShares 2023 Corporate Bond ETF (BSCN).

We examine the three best investment grade corporate bond ETFs below. All numbers are as of Aug. 18, 2022. In order to focus on the funds’ investment strategy, the top holdings listed for each ETF exclude cash holdings and holdings purchased with securities lending proceeds except under unusual cases, such as when the cash portion is exceptionally large.

  • Performance Over One-Year: 25.0%
  • Expense Ratio: 0.10%
  • Annual Dividend Yield: 1.68%
  • Three-Month Average Daily Volume: 591,880
  • Assets Under Management: $2.5 billion
  • Inception Date: Sept. 17, 2014
  • Issuer: Invesco

BSCN tracks the Nasdaq Bulletshares USD Corporate Bond 2023 Index, which is designed to measure the performance of a portfolio of U.S. dollar-denominated investment grade corporate bonds with maturities or effective maturities in 2023. The fund uses a “sampling” methodology to invest in at least 80% of corporate bonds that comprise the index. Corporate bonds of financials, healthcare, and consumer discretionary companies receive the largest sector allocations within the portfolio. BulletShares funds are unique in that they distribute principal back to investors once the scheduled maturity date is reached. BSCN’s maturity date is 2023 and will terminate on around Dec. 15, 2023.

The top corporate bond holdings of BSCN include those issued by Apple Inc. (AAPL), which sells personal computers, mobile devices, and services; Bank of America Corp. (BAC), a diversified financial services company; and The Boeing Co. (BA), an aerospace company serving the defense, commercial and aerospace markets.

  • Performance Over One-Year: 0.3%
  • Expense Ratio: 0.10%
  • Annual Dividend Yield: 1.92%
  • Three-Month Average Daily Volume: 329,173
  • Assets Under Management: $1.4 billion
  • Inception Date: March 10, 2015
  • Issuer: BlackRock Financial Management

IBDN seeks to track the Bloomberg December 2022 Maturity Corporate Index, which is comprised of U.S. dollar-denominated, investment grade corporate bonds maturing in 2022. The ETF provides exposure to investment grade corporate bonds with maturities between Jan. 1, 2022 and Dec. 15, 2022. The corporate bonds of companies in the banking, consumer staples, and technology sectors receive the largest sector allocations within the fund.

The top corporate bond holdings of IBDN include those issued by AbbVie Inc. (ABBV), a biopharmaceutical company; Visa Inc. (V), the financial services company; and Sumitomo Mitsui Financial Group Inc. (SMFG), the Japan-based multinational banking and financial services company.

  • Performance Over One-Year: -0.0%
  • Expense Ratio: 0.10%
  • Annual Dividend Yield: 1.99%
  • Three-Month Average Daily Volume: 582,808
  • Assets Under Management: $1.9 billion
  • Inception Date: July 17, 2013
  • Issuer: Invesco

BSCM aims to track the Nasdaq Bulletshares USD Corporate Bond 2022 Index, which is designed to gauge the performance of a basket of U.S. dollar-denominated investment grade corporate bonds with maturities or effective maturities in 2022. Like BSCN above, this ETF uses a “sampling” methodology to invest at least 80% of its assets in corporate bonds that make up the index. Corporate bonds of financial, information technology, and healthcare companies receive the largest allocations within the fund. BSCM is also a BulletShares fund, which means that it distributes the principal back to investors once its scheduled maturity date is reached. The fund’s maturity year is 2022 and it will terminate on or around Dec. 15, 2022.

Cash and cash equivalents comprise the largest combined holding in the portfolio, more than 30%, and include both T-Bills and the Invesco Government & Agency Portfolio, which holds short-term, high-quality money market instruments. Beyond cash, the second and third top holdings of the fund consist of two distinct sets of bonds issued by AbbVie.

The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.

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