Bonds are one of the major fundamentals of any investment portfolio. Due to the recent global crisis bonds have been under pressure and finding the right mix of fixed income is a key component to a successful portfolio. Bonds are classified into various categories of which intermediate corporate bonds are one.
The outlook of the intermediate corporate bond looks reasonable as long as the treasury yield remain low. While the Fed's QE-II initiative continues, treasury yields are likely to stick to their lows and returns of intermediate bond should benefit. Currently the most attractive risk-reward profiles in the marketplace are investment grade — bonds that have at least a Baa / BBB- rating from Moody's. These bonds are paying 5% to 7%, for those within the five- to 10-year maturity bracket.
This article highlights ETFs within this category that could strengthen your portfolio. The table provides a list of intermediate corporate bond ETFs.
|
Description |
Symbol |
1 Yr |
3 Yr |
5 Yr |
Avg. Volume(K) |
1 Yr Sharpe |
|
Vanguard Interm-Tm Corp Bd Idx |
8.29% |
NA |
NA |
56 |
180.0% |
|
|
iShares Barclays Credit Bond |
6.1% |
5.88% |
NA |
46 |
162.35% |
|
|
iShares Barclays Intermediate |
5.33% |
5.5% |
NA |
229 |
157.7% |
|
|
SPDR Barclays Cap Interm Term |
5.61% |
NA |
NA |
42 |
155.31% |
|
|
PIMCO Investment Grade Corp Bd |
NA |
NA |
NA |
6 |
NA |
VCIT is currently the best in terms of annual return, whereas CIU has longevity and volume. Please find the table of Distribution of credit quality† (% of fund) as of 02/28/2011.
|
|
VCIT |
CIU |
|
Aaa |
1.3% |
11.94% |
|
Aa |
13.2% |
14.1% |
|
A |
43.3% |
41.25% |
|
Baa |
42.2% |
32.71% |
|
Total |
100.0% |
100% |
The average credit rating of both of these intermediate corporate bonds ranges from AAA to BAA.
Vanguard first traded VCIT on November 19, 2009. VCIT, holds both government and corporate bonds. The average yield to maturity is 5.2% and the average coupon rate is 6.4%. Average maturity is 7.8 years. All holdings mature within five to ten years. The ETF offers the flexibility and safety to gain profit from corporate bond yields that are higher than those available from government bond issuers. The expense ratio is very low at 0.15%. This is 84% lower than the average expense ratio of funds with similar holdings.
CIU average yield to maturity is 6.22% and the average coupon rate is 5.06%. Average maturity is 4.95 years. All holding matures within five to ten years except for 1% which are greater than 10 years. The expense ratio is higher than VCIT at 0.20%.
It will be very interesting to see what PIMCO (CORP) brings when we get some history there. They are introducing a managed ETF which could be effective in this area.
In the conclusion investment bonds provides stability but there are other risk factor involves such as credit, interest rate inflation. that the best option may be to consider both VCIT and CIU or CFT to provide returns and longevity in your portfolio.
Exchange Tickers: (NYSE: VCIT), CFU, CIU, ITR, CORP
Symbols: VCIT, CFU, CIU, ITR, CORP
Disclaimer:
MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.
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