Market Overview

Corporate Bond ETFs Remain Popular

Corporate Bond ETFs Remain Popular

Even amid fears of multiple interest rate hikes from the Federal Reserve this year, investors continue pouring into fixed income exchange traded funds. That after a record year of asset gathering for bond ETFs.

Appeal Of Bond Funds

Increased regulatory burdens are making it harder for professional traders to deal in individual bonds, prompting pros to look to bond ETFs as more liquid alternatives. Year-to-date, three of the top 10 asset-gathering ETFs are bond funds.

“The growing popularity of bond ETFs helps improve the liquidity and keep the operating and trading costs low for all potential investors. According to CFRA’s Marketscope Advisor platform, 46 fixed income ETFs trade more than 400,000 shares on a daily basis and 699 trade with a bid/ask spread of $0.03 or less,” said CFRA Research in a note out Monday. 

Related Link: Warming Up To Junk Bond ETFs In 2017

LQD Profile

The iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE: LQD), the largest corporate bond ETF and one of the largest bond ETFs of any variety, has added $3.1 billion in new assets this year. That is tops among bond ETFs and puts LQD second among all ETFs.

LQD “is the largest such investment grade offering, with $30 billion in assets and a 3.5 percent 30-day SEC yield. According to CFRA, 45 percent of assets are in bonds rated BBB or equivalent, with A-rated bonds comprising an additional 38 percent. LQD trades on average 4.4 million shares on a daily basis, a 0.15 percent expense ratio and has $0.01 bid/ask spread. Yet, its duration of 8 years serves as an offset in our ranking” said CFRA.

ITR: A Medium-Term Spin

The SPDR Bloomberg Barclays Intermediate Term Corporate Bond ETF (NYSE: ITR) offers a medium-term spin on investment-grade corporate bonds. ITR, which has added nearly $82 million in fresh assets this year, has a modified adjusted duration of 4.51 years. ITR holds nearly 3,500 bonds and has an average coupon of 3.56 percent.

ITR “has $1.8 billion in assets and a 2.7 percent 30-day yield. The yield differential stems from a lower duration, just 4.5 years, and is partially offset by a moderately higher 48 percent stake in BBB-bonds. Despite ITR’s cheaper 0.12 percent expense ratio and a still tight bid/ask spread of $0.02, the ETF trades just 450,000 shares on a daily basis,” said CFRA.

CFRA has Overweight ratings on LQD and ITR. That is the highest ETF rating the research firm assigns.

Posted-In: Analyst Color Long Ideas News Bonds Specialty ETFs Markets Analyst Ratings Trading Ideas Best of Benzinga


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