Exchange-traded funds (ETFs) are not reserved solely for equities; there are also bond ETFs that invest exclusively in fixed-income securities. Investors who want to access relatively low risk corporate bonds can consider investment grade corporate bond ETFs, which buy the high-quality debt of financially strong and stable companies. Examples of the kinds of companies whose bonds are included in these ETFs include Verizon Communications Inc. (VZ), Goldman Sachs Group Inc. (GS), and Wells Fargo & Co. (WFC). These companies have high credit ratings, suggesting a low risk of default. For this reason, these ETFs can provide a strong defensive addition to investment portfolios.
- The investment grade corporate bond sector underperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are IGLB, SPLB, and VCLT.
- The top holding for both IGLB and SPLB is the bonds of Pacific Gas and Electric, while the top holding for VCLT is the bonds of GlaxoSmithKline Capital.
The investment grade corporate bond ETF universe is comprised of about 35 distinct ETFs, excluding inverse and leveraged ETFs as well as funds with less than $50 million in assets under management (AUM). As of August 13, 2020, the investment grade corporate bond sector, as measured by the Vanguard Total Corporate Bond ETF (VTC), has underperformed the broader market with a total return of 5.2% over the past 12 months compared to the S&P 500's total return of 19.4%. The best-performing investment grade corporate bond ETF for Q4 2020, based on performance over the past year, is the iShares Long-Term Corporate Bond ETF (IGLB). We examine the top 3 best investment grade corporate bond ETFs below. All figures below are as of August 14, 2020.
- Performance over 1-Year: 11.5%
- Expense Ratio: 0.06%
- Annual Dividend Yield: 3.32%
- 3-Month Average Daily Volume: 293,628
- Assets Under Management: $1.9 billion
- Inception Date: December 8, 2009
- Issuer: iShares
IGLB tracks the ICE BofAML10+ Year U.S. Corporate Index. The fund invests in U.S. dollar-denominated bonds with maturities of more than 10 years. The ETF has holdings consisting of over 2,500 corporate bonds, issued by hundreds of companies. The fund's top three holdings include bonds of Pacific Gas and Electric Co. (PCG), an energy utility holding company; bonds of GE Capital International Funding Co. Unlimited Co., the international funding segment of GE Capital Corp.; and bonds of Anheuser-Busch Cos. LLC, a producer of alcoholic beverages.
- Performance over 1-Year: 11.2%
- Expense Ratio: 0.07%
- Annual Dividend Yield: 3.24%
- 3-Month Average Daily Volume: 412,740
- Assets Under Management: $858.8 million
- Inception Date: March 10, 2009
- Issuer: State Street SPDR
SPLB is a bond ETF that invests in U.S. investment grade corporate bonds with durations greater than ten years. This fund tracks the Bloomberg Barclays Long U.S. Corporate Index, a benchmark focusing on investment grade bonds with at least $300 million in outstanding par value. The fund has over 2,100 holdings, of which the top three positions are the bonds of Pacific Gas and Electric; a cash component; and bonds of GE Capital International Funding.
- Performance over 1-Year: 11.1%
- Expense Ratio: 0.05%
- Annual Dividend Yield: 3.09%
- 3-Month Average Daily Volume: 754,578
- Assets Under Management: $5.1 billion
- Inception Date: November 23, 2009
- Issuer: Vanguard
VCLT invests in investment grade corporate bonds on the long end of the maturity spectrum. It tracks the Barclays U.S. 10+ Year Corporate Index and provides investors with moderate credit risk and an ample amount of interest rate risk. The ETF's top three holdings include the bonds of GlaxoSmithKline Capital Inc., a special purpose entity serving the financing needs of its parent company, U.K.-based healthcare company GlaxoSmithKline PLC (GSK); bonds of Microsoft Corp. (MSFT), a multinational technology company; and bonds of Johnson & Johnson (JNJ), a pharmaceutical and consumer goods company.