Exchange Traded Funds (ETFs)

Finding Solace in a Bond ETF Without Surrendering

Amid the wave of selling caused by war in Ukraine and the continued effects of supply chain disruptions amid the COVID-19 pandemic, some investors are turning to bonds and bond-related exchange-traded funds (ETFs) as sources of solace in an increasingly turbulent and unstable world.

That, of course, is easier said than done. Not only are there many different types of bonds, including Treasury, savings, agency, municipal and corporate, each sector of the bond market attracts different buyers and sellers.

Their respective bonds also contain different levels of duration, as well as levels of risk and reward. Indeed, the level of complexity in the bond market might cause more than a few aspiring bond traders to raise their hands skyward, as if to surrender, and exit.

However, there are more than a few bond-related ETFs that aim to demystify this process. One of these has appeared in my Successful Investing trading service: iShares iBoxx USD Investment Grade Corporate Bond ETF (NYSEARCA: LQD).

This ETF draws on bonds from the Markit iBoxx USD Liquid Investment Grade Index. Since this index only contains bonds that are three years to maturity, this exposes LQD to a higher-level of interest-rate-related risk than other bond ETFs. While the lion’s share (85.87%) of LQD’s bond portfolio is comprised of U.S. bonds, LQD’s portfolio also contains bonds from the United Kingdom (4.47%), Canada (2.41%), Japan (2.24%) and beyond.

The top four holdings in the portfolio are BlackRock Cash Funds Treasury SL Agency Shares, Anheuser-Busch Cos. LLC 4.9% 01-FEB-2046, CVS Health Corporation 5.05% 25-MAR-2048 and T-Mobile USA, Inc. 3.875% 15-APR-2030.

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As of June 14, LQD has been down 3.57% over the past month and down 8.70% for the past three months. It is currently down 18.08% year to date.

Chart courtesy of www.stockcharts.com

The fund has amassed $31.43 billion in assets under management and has an expense ratio of 0.14%.

In short, while LQD does provide investors with an access point into the bond market, this kind of ETF may not be appropriate for all portfolios. Thus, interested investors always should conduct their due diligence and decide whether the fund is suitable for their investing goals.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Successful Investing, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.