Market Overview

Go Corporate With This Bond ETF

Go Corporate With This Bond ETF

It is widely known that investors are flocking to fixed income exchange-traded funds this year. Two such funds are found among this year's top 10 asset-gathering ETFs, and one of those is the iShares iBoxx $ Invest Grade Corp Bd Fd (NYSE: LQD).

LQD, Making A Splash

Last month, it was revealed that global bond ETFs topped a record $600 billion in combined assets under management. Of the nearly $23 billion added to global bond ETFs during the second quarter, iShares captured $11.9 billion of that total, including $4.7 billion in the U.S. Year-to-date, bond ETFs around the world have added $66.7 billion in new assets with $39.3 billion allocated to iShares funds, including $24.3 billion to the issuer's U.S.-listed bond ETFs.

LQD, the largest corporate bond ETF, is helping drive iShares' fixed income growth this year, as highlighted by the $5.47 billion in new assets added to the ETF year-to-date — a total exceed by just five other ETFs.

Related Link: A Timely New ETF

Now home to $31.5 billion in assets under management, LQD is also S&P Capital IQ's focus ETF for the month of August.

“LQD recently had a 2.9 percent 30-day SEC yield, which is much higher than the 1.1 percent yield for the five-year Treasury note. The S&P Global Ratings U.S. investment-grade composite spread over Treasuries was 196 basis points (bps) as of July 27. By industry, financial institutions and telecommunications were at 248 bps and 333 bps, respectively. The investment-grade composite spread was moderately narrower than its one-year moving average of 215 bps but moderately wider than its five-year moving average of 189 bps,” said the research firm in a note out Monday.

LQD offers a compelling alternative to U.S. Treasury ETFs due to its higher-by-comparison yield. However, LQD's yield is, in part, arrive at via a 45 percent allocation to BBB-rated bonds. That is at the lower end of the investment-grade spectrum, but LQD does devote over 53 percent of its weight to corporates rated AA or A.

LQD holds over 1,600 corporate bonds with an effective duration of almost 8.6 years.

LQD “tracks an index of U.S. dollar denominated and liquid investment-grade corporate bonds. The approximately 1,600 holdings are diversified across issuers and included well-established companies in the energy, financials, information technology, and telecom services sectors with strong credit profiles. The largest issuers at the end of June 2016 included Apple Inc. (NASDAQ: AAPL) (AA+ credit rating from S&P Global Ratings),JPMorgan Chase & Co. (NYSE: JPM) (A-), Morgan Stanley (NYSE: MS) (BBB+), and Verizon Communications Inc. (NYSE: VZ) (BBB+),” added S&P Capital IQ.

The research firm rates LQD Overweight.

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