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iShares Launches Investment Grade Corporate Bond ETF

Zacks Equity Research
Asbury Automotive (ABG) shares have started gaining and might continue moving higher in the near term, as indicated by solid earnings estimate revisions.

iShares launched a new fixed income fund focused on providing exposure to the investment grade corporate bond space. 

 

iShares 10+ Year Investment Grade Corporate Bond ETF LLQD tracks the Markit iBoxx USD Liquid Investment Grade Long Index. 

 

Fund Characteristics

 

The fund seeks to provide exposure to U.S. dollar-denominated, investment grade corporate bonds that have a maturity greater than 10 years. It has AUM of $9.97 million and seeks to provide cheap exposure to the highly rated corporate bond space. It charges 6 basis points as fee per year and holds 165 investment grade bonds in its portfolio. It bears less concentration risk as just over 15.7% is allocated to the top 10 holdings.

 

From a sector look, Consumer Non-cyclical, Communications and Banking are the top three allocations of this fund, with 17.6%, 14.8% and 13.6% exposure, respectively (as of Sep 21, 2017). 

 

From a credit rating perspective, the fund has 44.7% exposure to BBB rated bonds, 38.7% to A rated bonds, 8.2% to AA rated bonds and 4.2% to AAA rated bonds. Therefore, due to its investment grade focus, the fund bears negligible default risk. 

 

However, the fund targets the long end of the yield curve, as it has a weighted average maturity of 23.7 years and an effective duration of 13.7 years. Therefore, it bears significant interest rate risk. 

 

Moreover, in its September meet, the Fed announced plans to curtail its $4.5 trillion balance sheet beginning October and signaled a rate hike by the end of this year. This fund is expected to be significantly impacted owing to its high duration.

 

Competition

 

The fund faces a lot of competition from other investment-grade corporate bond funds. Below we discuss a few ETFs that seek to provide exposure to this corner.

 

Vanguard Long-Term Corporate Bond ETF VCLT

 

This fund has AUM of $2.11 billion and seeks to provide exposure to investment grade corporate bonds. It charges 7 basis points in fee per year and holds 1721 bonds in its portfolio. From a sector look, Industrial, Finance and Utility are the top three allocations of this fund, with 70.1%, 17.4% and 11.6% exposure, respectively (as of Aug 31, 2017). The fund targets the long end of the yield curve as it has a weighted average maturity of 23.6 years and an effective duration of 14.2 years. The fund has returned 4.8% year to date but lost 1.7% in a year (as of Sep 21, 2017).

 

SPDR Bloomberg Barclays Long Term Corporate Bond ETF LWC

 

This fund has AUM of $238.8 million and seeks to provide exposure to investment grade corporate bonds. It charges 12 basis points in fee per year and holds 1501 bonds in its portfolio. From a sector look, Industrial, Finance and Utility are the top three allocations of this fund, with 71.4%, 17.0% and 11.8% exposure, respectively (as of Sep 21, 2017). The fund targets the long end of the yield curve as it has an average maturity of 23.72 years and option-adjusted duration of 14.18 years. The fund has returned 5.2% year to date but lost 2.1% in a year (as of Sep 21, 2017).

 

PIMCO Investment Grade Corporate Bond Index Exchange-Traded Fund CORP

 

This fund has AUM of $808.75 million and seeks to provide exposure to investment-grade corporate bonds. It charges 20 basis points in fee per year and holds 437 bonds in its portfolio. From a sector look, Investment Grade Credit, Emerging Markets and Net Other Short Duration Instruments are the top three allocations of this fund, with 92.5%, 4.6% and 2.9% exposure, respectively (as of Aug 31, 2017). The fund targets the intermediate end of the yield curve as it has an effective maturity of 10.16 years and option-adjusted duration of 6.93 years. The fund has returned 2.8% year to date but lost 1.2% in a year (as of Sep 21, 2017).

 

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iShares launched a new fixed income fund focused on providing exposure to the investment grade corporate bond space. 

iShares 10+ Year Investment Grade Corporate Bond ETF (LLQD) tracks the Markit iBoxx USD Liquid Investment Grade Long Index. 

Fund Characteristics

The fund seeks to provide exposure to U.S. dollar-denominated, investment grade corporate bonds that have a maturity greater than 10 years. It has AUM of $9.97 million and seeks to provide cheap exposure to the highly rated corporate bond space. It charges 6 basis points as fee per year and holds 165 investment grade bonds in its portfolio. It bears less concentration risk as just over 15.7% is allocated to the top 10 holdings.

From a sector look, Consumer Non-cyclical, Communications and Banking are the top three allocations of this fund, with 17.6%, 14.8% and 13.6% exposure, respectively (as of Sep 21, 2017). 

From a credit rating perspective, the fund has 44.7% exposure to BBB rated bonds, 38.7% to A rated bonds, 8.2% to AA rated bonds and 4.2% to AAA rated bonds. Therefore, due to its investment grade focus, the fund bears negligible default risk. 

However, the fund targets the long end of the yield curve, as it has a weighted average maturity of 23.7 years and an effective duration of 13.7 years. Therefore, it bears significant interest rate risk. 

Moreover, in its September meet, the Fed announced plans to curtail its $4.5 trillion balance sheet beginning October and signaled a rate hike by the end of this year. This fund is expected to be significantly impacted owing to its high duration.

Competition

The fund faces a lot of competition from other investment-grade corporate bond funds. Below we discuss a few ETFs that seek to provide exposure to this corner.

Vanguard Long-Term Corporate Bond ETF (VCLT)

This fund has AUM of $2.11 billion and seeks to provide exposure to investment grade corporate bonds. It charges 7 basis points in fee per year and holds 1721 bonds in its portfolio. From a sector look, Industrial, Finance and Utility are the top three allocations of this fund, with 70.1%, 17.4% and 11.6% exposure, respectively (as of Aug 31, 2017). The fund targets the long end of the yield curve as it has a weighted average maturity of 23.6 years and an effective duration of 14.2 years. The fund has returned 4.8% year to date but lost 1.7% in a year (as of Sep 21, 2017).

SPDR Bloomberg Barclays Long Term Corporate Bond ETF (LWC)

This fund has AUM of $238.8 million and seeks to provide exposure to investment grade corporate bonds. It charges 12 basis points in fee per year and holds 1501 bonds in its portfolio. From a sector look, Industrial, Finance and Utility are the top three allocations of this fund, with 71.4%, 17.0% and 11.8% exposure, respectively (as of Sep 21, 2017). The fund targets the long end of the yield curve as it has an average maturity of 23.72 years and option-adjusted duration of 14.18 years. The fund has returned 5.2% year to date but lost 2.1% in a year (as of Sep 21, 2017).

PIMCO Investment Grade Corporate Bond Index Exchange-Traded Fund (CORP)

This fund has AUM of $808.75 million and seeks to provide exposure to investment-grade corporate bonds. It charges 20 basis points in fee per year and holds 437 bonds in its portfolio. From a sector look, Investment Grade Credit, Emerging Markets and Net Other Short Duration Instruments are the top three allocations of this fund, with 92.5%, 4.6% and 2.9% exposure, respectively (as of Aug 31, 2017). The fund targets the intermediate end of the yield curve as it has an effective maturity of 10.16 years and option-adjusted duration of 6.93 years. The fund has returned 2.8% year to date but lost 1.2% in a year (as of Sep 21, 2017).

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VANGD-LT CRP BD (VCLT): ETF Research Reports
 
SPDR-BBC LT CRB (LWC): ETF Research Reports
 
ISHRS-10+Y IGCB (LLQD): ETF Research Reports
 
PIMCO-IG CRIETF (CORP): ETF Research Reports
 
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