With interest rates on the rise in the United States, investors are embracing the volatility in the fixed-income market. 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 in the future. Investors interested in diversifying their portfolio with long-term corporate bonds have several compelling high-yielding exchange-traded funds (ETFs) that received strong rankings from fund-rating agencies.
SPDR Barclays Long Term Corporate Bond ETF
As of Sept. 29, 2018, the SPDR Barclays Long Term Corporate Bond ETF (NYSEACRA: LWC) demonstrated a 12-month trailing yield of 4.38% and a 30-day Securities and Exchange Commission (SEC) yield of 4.66%. 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 accumulated $331.48 million in assets under management (AUM) and had 1,643 holdings in its portfolio. The ETF's assets are concentrated in industrial issuers at 70.70%, financial services companies at 16.27% and utility issuers at 12.7% weight. The fund holds high-quality bonds only with 50% of its holdings rated A or above. The fund's portfolio demonstrated an average yield-to-maturity of 4.67% and an average duration of 13.49 years.
As of Aug. 31, 2018, the fund exhibited a year-to-date (YTD) loss of 5.64% and a one-year loss of 2.34%. For the three-year period, the fund generated an average annual return of 5.62%, while for the five-year period the fund showed an average annual return of 5.89%. The ETF comes with an expense ratio of 0.07% and received a five-star overall rating from Morningstar for its strong risk-adjusted performance in the corporate bond category.
Vanguard Long-Term Corporate Bond ETF Shares
The Vanguard Long-Term Corporate Bond ETF Shares (NASDAQ: VCLT) showed a 30-day SEC yield of 4.64% as of Sept. 29, 2018. The ETF 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 had $3.5 billion in AUM and 1,851 bonds in its portfolio. The ETF's bonds holdings are concentrated on industrials, financial services companies, and utilities. Yield-to-maturity for the fund's portfolio stands at 4.6% and an average duration is 13.6 years.
As of Sept. 29, 2018, the ETF showed a YTD loss of 5.19% and a one-year loss of 2.57%. The ETF's average annual returns were 5.17% for the three-year period and 5.83% for the five-year period. Morningstar awarded the fund with a five-star overall rating in the corporate bond category. The fund has an expense ratio of 0.09%.
iShares Long-Term Corporate Bond ETF
The iShares Long-Term Corporate Bond ETF (NYSEACRA: IGLB) generated a 12-month trailing distribution yield of 4.36% and a 30-day SEC yield of 4.69%. Started in December 2009, the ETF tracks the performance of the ICE BofAML 10+ Year US Corporate Index, which is composed of long-duration corporate bonds issued by U.S. companies. There were 1,627 holdings in the fund's portfolio with $574.4 million in AUM. Compared to its peers, this ETF has wider sector diversification.
The top sectors in the fund's portfolio are consumer noncyclical at 16.91% allocation and communications at 12.41%. Almost the entire fund's portfolio is of investment-grade bonds, with bonds rated BBB having about 49.5% allocation. The fund had a yield-to-maturity of 4.66% and an average duration of 13.28 years.
As of Aug. 31, 2018, the fund generated a one-year loss of 2%. The fund demonstrated average annual returns of 5.29% for the three-year period and 5.59% for the five-year period. Morningstar assigned the fund a four-star overall rating in the corporate bond category. The expense ratio for the fund is 0.06%.