Exchange Traded Funds (ETFs) they are not just reserved for stocks. They are here too bond ETFs which invest exclusively in fixed income securities. Investors looking to gain access to relatively low-risk corporate bonds may want to consider investment grade corporate bond ETFs that buy high-quality debt from financially strong and stable companies. Examples of 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). These companies have a high credit ratings, indicating a low risk of default. Because of this, these ETFs can provide strong defensive addition to the investment portfolios.
- The investment-grade corporate bond sector has lagged behind the broad US stock market over the past year.
- The top investment grade corporate bond ETFs for Q4 2022 are BSCN, IBDN and BSCM.
- The top holding of the first fund below is bonds issued by Apple Inc., while the largest corporate bond holdings of the second and third funds are AbbVie Inc.
There are 67 different investment-grade corporate bond ETFs traded in the US, excluding inverse and leverage effect ETFs as well as funds with less than $50 million assets under management (AUM). The investment-grade corporate bond sector, as measured by the Bloomberg US Corporate Bond Index, has underperformed the broad US stock market with a total return of -12.9% over the past 12 months, compared to the S&P 500’s total return of -2.5%. as of August 17, 2022. The best-performing investment-grade corporate bond ETF based on past year performance is the Invesco BulletShares 2023 Corporate Bond ETF (BSCN).
Below, we examine three of the best investment-grade corporate bond ETFs. All figures are as of August 18, 2022. In order to focus on the funds’ investment strategy, the best holdings listed for each ETF exclude cash holdings and holdings purchased with securities lending proceeds, except in unusual cases, such as when the cash portion is exceptionally large.
- Performance in 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
- Start date: September 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 US dollar-denominated investment grade corporate bonds with maturity or effective maturity in 2023. The Fund uses a “sampling” method to invest in at least 80% of the corporate bonds that make up the Index. The largest sector allocations within the portfolio are given to corporate bonds from financial, health and consumer companies. BulletShares funds are unique in that they distribute principal back to investors when the scheduled maturity date is reached. The BSCN maturity date is 2023 and will expire around December 15, 2023.
Among the most significant corporate bonds held by BSCN are bonds 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. (B.A), an airline serving the defense, commercial and aviation markets.
- Performance in 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
- Start date: March 10, 2015
- Issuer: BlackRock Financial Management
IBDN seeks to track the Bloomberg Corporate Index due December 2022, which consists of US dollar-denominated investment grade corporate bonds maturing in 2022. The ETF provides exposure to investment grade corporate bonds maturing between January 1, 2022 and December 15, 2022. 2022. Corporate bonds of companies in the banking, consumer and technology sectors receive the largest sector allocations within the fund.
Among the most significant corporate bonds held by IBDN are bonds issued by AbbVie Inc. (ABBV), a biopharmaceutical company; Visa Inc. (AGAINST), a financial services company; and Sumitomo Mitsui Financial Group Inc. (SMFG), a Japanese multinational banking and financial services company.
- Performance in 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
- Start date: July 17, 2013
- Issuer: Invesco
BSCM aims to track the Nasdaq Bulletshares USD Corporate Bond 2022 Index, which is designed to measure the performance of a basket of US dollar-denominated investment grade corporate bonds due or effective maturities in 2022. Like BSCN above, this ETF uses “sampling” methodology to invest at least 80% of its assets in the corporate bonds that make up the index. The largest allocations within the fund go to corporate bonds from financial, information technology and healthcare companies. BSCM is also a BulletShares fund, meaning it distributes principal back to investors once the scheduled maturity date is reached The maturity year of the fund is 2022 and it will end around December 15, 2022.
Cash and cash equivalents they comprise the largest combined share in the portfolio, more than 30%, and include both treasury bills and the Invesco Government & Agency Portfolio, which holds short-term, high-quality money market instruments. In addition to cash, the fund’s second and third largest holdings consist of two distinct sets of bonds issued by AbbVie.
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