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Team, Cost Advantage Back This Corporate Bond Fund

Bronze-rated iShares iBoxx $ Investment Grade Corporate Bond is a solid option for investors who can handle a bit more interest-rate risk.


Phillip Yoo: IShares iBoxx $ Investment Grade Corporate Bond (LQD) is a solid option for market-cap-weighted exposure to U.S. dollar-denominated debt with more than three years remaining until maturity. This exclusion of short-term bonds gives the fund greater interest-rate risk than most of its actively managed peers in the corporate bond Morningstar Category. However, the strategy has the backing of BlackRock's capable indexing team and a durable cost advantage, warranting a Morningstar Analyst Rating of Bronze.

Roughly one third of the portfolio is invested in the banking sector, which is a source of risk. The average sector exposure has been around 25% of the portfolio from 2009 to 2013, according to Morningstar data. Any negative developments in this sector could hurt the performance. Its market-cap-weighting steered the fund toward A- and BBB-rated financial institution bonds. These bonds have low default risk, and offer a higher yield than Treasury securities with comparable terms.

Phillip Yoo does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.