ETF Specialist

Low-Cost Exposure to Investment-Grade Corporate Bonds

Alex Bryan, CFA

Broad investment-grade bond index funds sometimes get a bad rap for their bias toward Treasuries and agency mortgage-backed securities, which limits their yield. But it isn't necessary to hire an active manager to take more credit risk within the investment-grade arena. Investors can accomplish that more cheaply by buying an investment-grade corporate-bond index fund like  iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD).

There is a lot to like about this fund, from its durable cost advantage to its broadly diversified market-cap-weighted portfolio that approximates the composition of the U.S.-dollar investment-grade corporate-bond market. However, the fund's exclusion of bonds with less than three years until maturity gives it more interest-rate risk than most of its peers and prevents it from fully representing the opportunity set. It warrants a Morningstar Analyst Rating of Bronze.

Alex Bryan, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.