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A Refreshed Look at an Intermediate-Term Corporate Bond ETF

This article was originally published on ETFTrends.com.

The iShares Intermediate-Term Corporate Bond ETF (IGIB) is the new look on the exchange traded fund formerly known as the iShares Intermediate Credit Bond ETF (CIU) . The name and ticker changes went into effect earlier this month.

IGIB “seeks to track the investment results of an index composed of U.S. dollar-denominated investment-grade corporate bonds with remaining maturities between five and ten years,” according to iShares.

IGIB tracks the ICE BofAML 5-10 Year US Corporate Index. The $5.86 billion IGIB holds over 1,670 bonds and has an effective duration of 6.24 years, which is mostly inline with the category average. Duration measures a bond's sensitivity to changes in interest rates.

In the current interest rate environment, many fixed income investors are flocking to short-term bond funds while eschewing long-date fare. Sometimes, the middle part of the curve is appropriate to consider as well.

Inside IGIB

In a rising rate environment, the price of older bonds with lower rates will fall since these older debt securities appear less attractive and traders would demand a discount on the older lower-yielding debt. On the other hand, new bonds are issued at the newer and higher rates, so investors would be less inclined to hold older debt securities with less attractive yields. As a result, the less appealing older bonds will see prices fall in response to the diminished demand.

Related: Balancing Different Risks in Today’s Bond Market

As is the case with some competing intermediate-term corporate bond ETFs, IGIB's credit profile drifts toward the lower end of the investment-grade spectrum. Over 91% of the ETF's holdings are rated A or BBB.

Typically, many of these funds have significant exposure to the financial services sector due to that sector's massive issuance of corporate debt during and immediately following the global financial crisis. IGIB is true to that theme as the fund allocates 26.29% of its weight to bond's issued by banks. Consumer non-cyclical is the fund's second-largest sector exposure at 15.11%. Six of the ETF's top 10 holdings are issues from financial services firms.

IGIB has a 30-day SEC yield of 4.02% and charges 0.06% per year.

For more trends in fixed income, visit the Fixed Income Channel.

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