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3 Corporate Bond ETFs For Fed Debt Buying

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3 Corporate Bond ETFs For Fed Debt Buying

Beleaguered investment-grade corporate bond exchange traded funds got a lifeline Monday when the Federal Reserve said it buy $200 billion worth of high-grade corporate debt, helping the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE: LQD) to a gain of 7.39% on more than double the daily average.

While some strategists called the Fed's effort at propping up the suddenly fragile high-grade corporate debt market modest, it's still an assist for a battered asset class.

“However, the Fed says the Facility will avoid purchasing shares of eligible ETFs when they trade at prices that materially exceed the estimated net asset value (NAV) of the underlying portfolio,” said CFRA Research Director of ETF & Mutual Fund Research Todd Rosenbluth in a note out Monday. “This should hopefully limit investors from getting too far in front of the Fed, which might seem like a welcome problem given recent activity.”

See Also: What To Know About The Fed's Limitless Asset Purchase Order

Beyond LQD, here are three corporate bond ETFs that may become more attractive with some help from the Fed.

SPDR Portfolio Intermediate Term Corporate Bond ETF (SPIB)

The SPDR Portfolio Intermediate Term Corporate Bond ETF (NYSE: SPIB) follows the Bloomberg Barclays Intermediate US Corporate Index and with an annual fee of just 0.07%, or $7 on a $10,000 investment, it's one of the least expensive ETFs in this category.

SPIB, which yields 3.63% with an option-adjusted duration of 4.22 years, has $4.71 billion in assets under management. While that may not be large for the Fed to come calling with this fund, SPIB can still benefit from the central bank's corporate bond buying regime.

SPIB “might not be purchased directly by the Fed, it likely will still benefit as the bonds inside are bid higher from the Fed’s individual buying,” said Rosenbluth.

iShares Broad USD Investment Grade Corporate Bond ETF (USIG)

The iShares Broad USD Investment Grade Corporate Bond ETF (NASDAQ: USIG) is home to massive roster of 6,301 bonds and also resides in intermediate-term territory with a duration of seven years.

“I think this is a really good option if you're looking for a slight yield pickup over what the broad U.S. investment-grade market offers, but you want to keep risk in check,” Morningstar analyst Alex Bryan of USIG said in a recent note. “So, this particular fund invests in a broad range of investment-grade U.S. corporate debt, with bonds ranging anywhere from one year to maturity all the way up out the yield curve.”

Over 89% of USIG's holdings are rated A or BBB.

WisdomTree U.S. Corporate Bond Fund (WFIG)

The WisdomTree U.S. Corporate Bond Fund (CBOE:WFIG) is another example of a corporate bond ETF that's likely too small for the Fed, but that doesn't diminish the fund's utility in the curren environment.

WFIG, which tracks the WisdomTree U.S. Corporate Bond Index, is a fundamentally-weighted product, meaning it leans toward quality issues and can avoid some corporate bonds with the potential to become fallen angels.

 

Related Articles (WFIG + USIG)

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