have proved they're a safe haven in the latest stock market
While theSPDR S&P 500 ETF (
) has fallen 7% from its multiyear high, corporate bonds are
still trading near their highs.IShares IBoxx $ Invest Grade
Corporate Bond Fund (
) and other corporate bond ETFs kept rising while the stock
market started falling in mid-September.
"Corporate credit prices holding up well would indicate a
faith in the balance sheet health of corporate credit," said
Scott Colyer, CEO of Advisors Asset Management, based in
Monument, Colo., with $7.3 billion in assets under
In addition to holding their values, they're also rewarding
investors more for sitting tight. LQD yields 3.84% vs. 1.57% for
benchmark 10-year Treasury bonds and 2.02% for the SPY.
"Corporate Bond ETFs are a great way to spread out risk and
earn good yield even with volatility in the markets," said Ronald
Lang, principal at Atlas Wealth Management in Philadelphia, Pa.,
with $20 million in assets under management.
The major risk of investing in bonds is rising interest rates,
which move opposite of prices. When interest rates rise, bond
prices fall. The longer bonds have until maturity, the more their
prices will fall if rates rise.
Because of this, Lang recommendsVanguard Short-Term Bond ETF (
), which yields 1.65%, andVanguard Short-Term Corporate Bond ETF
), which yields 2.02%.
"Interest rates are low and can only go in one direction, up,
which will bring down the price of bonds," Lang said. "The
short-term bonds won't fluctuate as much with volatility in the
market and interest rate changes."
He also recommendsMarket Vectors International High Yield Bond
) andGuggenheim BulletShares 2015 High Yield Corporate Bond
(BSJF), which holds a batch of bonds that mature that year. IHY,
which started trading in September, has no indicated yield. BSJF
Investment-grade corporate bond ETFs are widely viewed as
low-risk investments as they hold debts issued by stable
companies with good credit.
"These companies generally incur lower risk profiles and have
more consistent cash flows that can help them weather the impact
of macroeconomic factors such as the potential slowdown from the
failure to resolve the fiscal cliff," said Todd Rosenbluth, ETF
analyst with S&P Capital IQ in New York.
Investors have been dumping stock funds en masse and piling
into bond funds on fears of the U.S. fiscal cliff, anti-austerity
protests in Europe and the 17-country eurozone falling into a
U.S. investment-grade bond funds absorbed $2 billion in the
week ended Nov. 14, according to EPFR Global. Meanwhile,
investors pulled $7 billion out of U.S. equity funds and more
than $1 billion from high-yield bond funds -- the most since
"EPFR Global-tracked bond funds took in $5.29 billion during
the week ended Nov. 14, while net redemptions from stock funds
hit their highest level since the week preceding the U.S. Federal
Reserve's announcement of QE3," EPFR wrote in a note.
Corporate Bond ETFs And Yields
1.Vanguard Short Term Corporate Bond ETF (
2.Vanguard Intermediate Term Corporate Bond ETF (VCIT)
3.Vanguard Long Term Corporate Bond ETF (VCLT) 3.88%
4.iShares Barclays Credit Bond Fund ETF (CFT) 3.48%
5.iShares IBoxx $ Invest Grade Corporate Bond Fund (
6.iShares iBoxx $ High Yield Corporate BondETF (HYG) 6.78%
7.SPDR Barclays Capital High Yield Bond ETF (JNK) 6.89%
8.Market Vectors International High Yield Bond ETF (
9.Guggenheim BulletShares 2015 High Yield Corporate Bond