Long-term corporate bonds typically offer higher returns in comparison to their short-term or intermediate-term counterparts. However, long-term corporate bonds are much more sensitive to interest rate changes, and they are likely to show a lot of volatility when interest rates in the United States rise.
Investors interested in diversifying their portfolios with long-term corporate bonds have several compelling high-yielding exchange-traded funds (ETFs) to choose from. Below are three of the most popular, with information that is available as of May 26, 2021.
- Long-term corporate bonds usually offer higher returns than short-term or intermediate-term corporate bonds.
- Long-term corporate bonds in comparison, however, are more sensitive to interest rate changes.
- To gain exposure to long-term corporate bonds, there are many exchange-traded funds (ETFs) that investors can access.
- Three of the most popular long-term corporate bond ETFs include the SPDR Portfolio Long Term Corporate Bond ETF, the Vanguard Long-Term Corporate Bond ETF, and the iShares 10+ Year Investment Grade Corporate Bond ETF.
SPDR Portfolio Long Term Corporate Bond ETF
The SPDR Portfolio Long Term Corporate Bond ETF (SPLB) demonstrated a one-year return of 8.97% and a 30-day Securities and Exchange Commission (SEC) yield of 3.47%. Created in March 2009, the fund tracks the performance of the Bloomberg Barclays Long U.S. Corporate Index, which is composed of investment-grade U.S. corporate bonds with long maturity profiles.
The fund has assets under management (AUM) of $996 million and has 2,315 holdings in its portfolio. The ETF's assets are concentrated in industrial issuers at 70%, financial services companies at 17.8%, and utility issuers at 12.1%, weighted. The fund holds high-quality bonds with only 47% of its holdings rated A or above. The fund's portfolio demonstrated an average yield-to-worst of 3.46% and an option-adjusted duration of 15.02 years.
The fund exhibited a year-to-date (YTD) loss of 8.55%. For the three-year period, the fund generated an annualized return of 7.41%, while for the five-year period the fund showed an annualized return of 6.72%. The ETF comes with an expense ratio of 0.07% and received a three-star overall rating from Morningstar.
Vanguard Long-Term Corporate Bond ETF
The Vanguard Long-Term Corporate Bond ETF (VCLT) was started in November 2009 to track the investment results of the Bloomberg Barclays U.S. 10+ Year Corporate Bond Index, which is composed of high-quality U.S. corporate bonds that mature mostly in 20 years or more.
The fund has $5.5 billion in total fund assets and 2,461 bonds in its portfolio. The ETF's bond holdings are concentrated on industrials (69.5%), financial services companies (17.3%), and utilities (11.8%). Yield-to-maturity for the fund's portfolio stands at 3.4% and the average duration is 14.6 years.
The ETF showed a YTD loss of 8.69% and a one-year return of 8.48%. The ETF's average annual returns were 7.55% for the three-year period and 6.72% for the five-year period. The 30-Day SEC yield was 3.33%. Morningstar awarded the fund with a three-star overall rating in the corporate bond category. The fund has an expense ratio of 0.05%.
iShares 10+ Year Investment Grade Corporate Bond ETF
The iShares 10+ Year Investment Grade Corporate Bond ETF (IGLB) generated a 12-month trailing distribution yield of 3.36% and a 30-day SEC yield of the same. Started in December 2009, the ETF tracks the performance of the ICE BofAML 10+ Year U.S. Corporate Index, which is composed of long-duration corporate bonds issued by U.S. companies.
There were 2,992 holdings in the fund's portfolio with $2.5 billion in net assets. Compared to its peers, this ETF has a wider sector diversification.
The top sectors in the fund's portfolio are consumer noncyclical at an 18.3% allocation, communications at 12.5%, and electric at 10.9%. Almost the entire fund's portfolio is of investment-grade bonds, with bonds rated BBB having about a 51% allocation. The fund had a yield-to-maturity of 3.37% and an average duration of 14.45 years.
The fund generated a one-year return of 9.82%. The fund demonstrated average annual returns of 7.35% for the three-year period and 6.52% for the five-year period. Morningstar assigned the fund a two-star overall rating in the corporate bond category. The expense ratio for the fund is 0.06%.