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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. This universe includes investment grade corporate bond ETFs, which buy the high quality debt of financially strong and stable companies. Some examples include Microsoft Corp. (MSFT), AT&T Inc. (T), and JPMorgan Chase & Co. (JPM). These companies have high credit ratings that indicate a low risk of default. For this reason, these ETFs can provide a strong defensive addition to investment portfolios.
The investment grade corporate bond ETF universe is comprised of about 48 distinct ETFs, excluding inverse and leveraged ETFs. The best-performing investment grade corporate bond ETF for Q2 2020, based on performance over the past year, is the FlexShares Credit-Scored U.S. Long Corporate Bond Index Fund (LKOR). We examine the top 3 investment grade corporate bond ETFs below. All numbers in this story are as of March 25, 2020.
- Performance over 1-Year: 4.8%
- Expense Ratio: 0.22%
- Annual Dividend Yield: 4.30%
- 3-Month Average Daily Volume: 3,035
- Assets Under Management: $22.7 million
- Inception Date: September 23, 2015
- Issuing Company: FlexShares
LKOR is a bond ETF that invests in U.S. investment grade corporate bonds with durations greater than ten years. The fund’s top three holdings include the bonds of Verizon Communications Inc. (VZ), a multinational telecommunications conglomerate; a cash component accounting for 3.3% of assets; and bonds of ConocoPhillips (COP), the multinational energy company.
- Performance over 1-Year: 3.9%
- Expense Ratio: 0.15%
- Annual Dividend Yield: 3.20%
- 3-Month Average Daily Volume: 160,144
- Assets Under Management: $580.2 million
- Inception Date: February 14, 2012
- Issuing Company: iShares
QLTA stands apart from other corporate bond ETFs as the first fund to focus on debt securities with a specific credit rating. With a fairly evenly balanced portfolio, QLTA holds only the highest-rated investment grade bonds (Aaa-A rating based on median assignments from Moody’s, Standard & Poor’s, and Fitch). The top three holdings as of this writing are a cash component, accounting for 1.3% of assets; bonds of Apple, Inc. (AAPL), the tech giant; and bonds of Bristol-Myers Squibb Co. (BMY), the pharmaceutical company.
- Performance over 1-Year: 2.6%
- Expense Ratio: 0.07%
- Annual Dividend Yield: 4.42%
- 3-Month Average Daily Volume: 725,082
- Assets Under Management: $511.9 million
- Inception Date: March 10, 2009
- Issuing Company: State Street SPDR
SPLB is a bond ETF that invests in U.S. investment grade corporate bonds with durations greater than ten years. The fund’s top three positions include bonds of CVS Health Corp. (CVS), a healthcare company; bonds of GE Capital International Funding Company Unlimited Co., the financial-services division of General Electric Co. (GE); and bonds of Anheuser-Busch Co., the brewing company, which is a subsidiary of Anheuser-Busch InBev (BUD).