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Investors Reignite Love for Corporate Bond ETFs

editor@etftrends.com (ETF Trends)

Amid what has been sanguine interest rate environment to this point in 2016, investors are renewing their enthusiasm for corporate bond exchange traded funds, including investment-grade and high-yield fare.

Bond investors who are wary of dipping too far into junk bond territory but want better yield payouts than Treasuries may consider investment-grade corporate bond exchange traded funds.

Related: High Quality Junk Bond ETFs Limit Default Risk

Currently, credit spreads are falling. Looking at corporate bonds, the diminish spread between government Treasury yields and corporate debt yields reflects investors’ lower perceived risks ahead. The Bank of America Merrill Lynch U.S./Corporate BBB Option-Adjusted Spread, which measures the borrowing costs of credit-worthy corporations, dipped to 2.07 percentage points in late April from 3.03 percentage points on February 11, reports Simon Constable for U.S. News.

With an interest rate hike looming as soon as June, investors may want to consider adding some active management to their bond ETFs with funds such as the AdvisorShares Newfleet Multi-Sector Income ETF (MINC) .

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MINC, which is just over three years old, primarily holds high quality investment grade debt. The fund will overweight and underweight 14 different bond sectors as the portfolio manager builds a diversified and tactical portfolio. Bond holdings will have a low average duration, targeted between 1 and 3 years.

Newfleet Asset Management, an affiliated manager of Virtus Investment Partners, will sub-advise the ETF.

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MINC “mixes a cross-section of bond sectors and maturities with two objectives: reducing volatility with a short duration and maximizing yield. The fund’s expense ratio of 0.75% is the result of two factors: the active management approach taken by the fund and the cost of transactions in global bonds. The fund limits high-yield corporate bonds to a maximum of 10% of the portfolio and non-U.S. holdings to 30% ,” according to Investopedia.

MINC looks to provide current income consistent with preservation of capital while mitigating fluctuations in net asset value due to interest rate changes. The fund has a 0.75% expense ratio.

“The weighted average maturity for the fund is 7.6 years and the duration is 2.4 years. The distribution yield is 2.79%. MINC’s one-year return is 1.63%, and its annualized return over three years is 1.68%,” adds Investopedia.

For more information on bond ETFs, visit our fixed-income category .

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.