Fearing a Market Slump? Take Flight to Corporate Bond ETFs

Since heightened trade tensions between the United States and China gripped markets from the last month, bond investing started sizzling. Fixed-income ETFs have raked in about $4.6 billion in July, almost double the total inflows for equity ETFs and the most of any asset class, per Bloomberg Intelligence data. This was after the $7.5-billion inflow to fixed-income ETPs in June, compared with losses of $7.2 billion in equity ETPs, as quoted on Bloomberg.

The $34.0-billioniShares iBoxx $ Investment Grade Corporate Bond ETF LQD added about $1.48 billion in inflows since June while the $152.4-billion fund iShares Core S&P 500 ETF (IVV) lost about $3.40 billion in assets. During this time frame, high-yield bond ETF $15.7-billion iShares iBoxx USD High Yield Corporate Bond ETF (HYG) lost about $138.0 million in assets, $7.52-billion Treasury fund iShares 20+ Year Treasury Bond ETF (TLT) attracted around $926.7 million.

Junk bonds have seen a nice turnaround this month with HYG adding about $1.37 billion in assets since June 30. Investors have probably started counting on solid corporate earnings and an oil price rebound. Moreover, with a hawkish Fed around, investors perhaps tapped junk bond ETFs providing benchmark-beating yields (read: Fed Turns Hawkish: ETF Areas to Win).

A Flight to Safety?

Notably, bonds are safer than stocks as bondholders get paid off before equity investors if a company liquidates. So, investors probably found fixed-income securities as safer bets amid flaring trade tensions. The United States and China first targeted $50 billion of each other’s goods for tit-for tat tariffs, enacted tariffs on $34 billion worth of goods effective Jul 6.

But the situation deteriorated with President Trump’s latest threat of imposing 10% tariff on another $200 billion of China products. The new tariff will go into effect sometime after Aug 30. This clearly explains investors’ inclination toward fixed-income securities (read: Trump Slaps Further Tariffs: Profit from Inverse ETFs).

Against this backdrop, investors may want to tap a few investment-grade bond ETFs to be associated with the corporates and still remain at a relatively safe area. This is especially true as weaker companies may start defaulting in the coming days with credit conditions getting tighter in the United States.

Against this backdrop, we highlight a few investment-grade corporate bond ETFs that should be on investors’ focus.

iShares ESG USD Corporate Bond ETF (SUSC)

The underlying Bloomberg Barclays MSCI US Corporate ESG Focus Index comprises of U.S. dollar-denominated, investment-grade corporate bonds issued by companies that have positive environmental, social and governance characteristics. It charges 18 bps in fees and yields 2.98% annually.

SPDR Portfolio Long Term Corporate Bond ETF (SPLB)

The underlying Bloomberg Barclays Long U.S. Corporate Index looks to track the performance of U.S. corporate bonds that have a maturity of greater than or equal to 10 years. It yields about 4.34% annually and charges 7 bps in fees.

iShares 10+ Year Credit Bond ETF(CLY)

The underlying Bloomberg Barclays U.S. Long Credit Index considers long-term, investment-grade U.S. corporate bonds and U.S. dollar-denominated bonds, including those of non-U.S. corporations and governments, with remaining maturities greater than 10 years.

Vanguard Long-Term Corporate Bond ETF VCLT

The fund follows the Bloomberg Barclays U.S. 10+ Year Corporate Bond Index. It includes U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities higher than 10 years.

SPDR Portfolio Intermediate Term Corporate Bond ETF (SPIB)

The underlying Bloomberg Barclays Intermediate U.S. Corporate Index is designed to measure the performance of U.S. corporate bonds that have a maturity of greater than or equal to one year and less than 10 years.

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