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U.S. Intermediate Corporate Bonds Lead By This Vanguard Bond ETF

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 (VCIT) 8.29% NA NA 56 180.0%
iShares Barclays Credit Bond (CFT) 6.1% 5.88% NA 46 162.35%
iShares Barclays Intermediate (CIU) 5.33% 5.5% NA 229 157.7%
SPDR Barclays Cap Interm Term (ITR) 5.61% NA NA 42 155.31%
PIMCO Investment Grade Corp Bd (CORP) NA NA NA 6 NA

Vanguard Interm-Tm Corp Bd Idx ETF (NASDAQ:VCIT) is currently the best in terms of annual return, whereas the iShares Barclays Intermediate Credit Bd (NYSE: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 the PIMCO Investment Grade Corp Bd Index ETF (NYSE: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 iShares Barclays Credit Bond (NYSE:CFT) to provide returns and longevity in your portfolio. 

Written By The Staff Of MyPlanIQ.com

LTI Systems, Inc. is the operator of MyPlanIQ.com and ValidFi.com. The founders of LTI Systems have extensive technology and business background in computer and semiconductor industries. They have been using the strategies provided by MyPlanIQ for their own personal retirement and taxable investments. The mission of LTI Systems is to make wealth management investment strategies that are used to be only accessible to institutions and high net worth individuals available to private investors with a fraction of flat cost and ease of use. The founders of LTI Systems, investors themselves, take pride in creating such a system and service for investors by taking the perspective from the investor side. They are using the system and the strategies for their own investment and align their interests with their customers.  

MyPlanIQ’s blog provides periodical articles to discuss issues related to retirement plans (401(k), 403(b) and IRAs), deferred compensation plans (457), college savings plans (529), taxable brokerage investment accounts, variable annuities and universal life insurance plans. It also covers investment strategies, specifically strategic and tactical asset allocation and investment products such as ETFs and mutual funds. In addition, it syndicates daily articles that are related to retirement planning, personal finance, investment strategies, annuities, insurance, college savings and market/economic outlooks. It provides a comment and discussion community for readers.


NASDAQ:VCIT, NYSE:CFT, NYSE:CIU, NYSE:CORP


 

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