Boxing in Potential Bond Profits

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

A traditional bond investment could involve purchasing government bonds and mortgage-backed securities with maturity adjusted for the desired level of return. An exchange-traded fund (ETF) could use the same strategy. However, iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) provides another, potentially more rewarding, choice through an aggregation of corporate bonds.

LQD gives exposure to a range of domestic investment-grade corporate bonds, primarily to large and well-known companies. This sort of investment generally carries somewhat more risk than government bonds. But even its occasional fluctuations in value are still fairly modest, compared with equities.

In keeping with the tendency of this investment to be a bit riskier than its bond counterparts, it is down 1.73% this year. But its 3.34% annual yield comes close to making up for it. Its expense ratio is a fairly meager 0.15%. At $19.1 billion in assets managed, this fund is fairly large. LQD is the last in our series featuring the 20 largest ETFs. The chart below highlights the past 12 months of its performance and shows how LQD rose in value before enduring a pullback and some recent volatility.


In terms of the sectors that this fund’s corporate bonds originate in, the largest is financial services, at 30.11%. Other sectors of concentration include consumer discretionary, at 15.36%, and communications, at 12.94%. The bond maturities run a wide range, from less than five years (24.99%) to more than 20 years (27.5%).

If you seek a bond investment with more flash and flair than treasury notes, iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) is an option worth considering.

Exclusive  Invest in High-Yield Companies with This Fund

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful ETF Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.

In case you missed it, I encourage you to read my e-letter column from last week about a financial-sector ETF. I also invite you to comment in the space provided below.

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