U.S. Long-Term Investment Grade Bond ETFs Offer Solid Returns for Low Risk

Includes: LQD, LWC, VCLT
by: MyPlanIQ

US Long Term Investment Grade Bond ETFs offer investors a relatively stable investment with higher returns than they can find in CDs and money markets. These ETFs track the performance of highly rated (low risk of default) corporate bonds from all sectors of the economy and can be helpful for an investor looking to diversify.

In recent periods, high-grade corporate bond issuers have entered the debt markets as a result of the Fed's QE2 initiative which aims to keep interest rates artificially low. These low rates have impacted the yield investors see from investments in US Long Term Investment Grade Bonds, including the iShares iBoxx $ Investment Grade Corporate ETF (NYSEARCA:LQD), which fell to the middle of the pack in one week growth among Fixed Income Assets (see in table below under "Long Term Credit"). In spite of stagnant growth in the most recent period, ETFs that track the US Long Term Investment Grade Bond Market have provided investors relatively strong returns when compared to other Fixed Income Assets, ranking high on the list in Trend Score.

Fixed Income Return Table 4/29/2011

Assets Class





International Inflation Protected WIP 9.22% 7.53% ^
International Treasury BWX 6.82% 4.91% ^
High Yield JNK 5.68% 5.88% v
Inflation Protected TIP 3.27% 2.89% ^
Long Term Credit LQD 2.87% 2.43% ^
Emerging Mkt Bonds PCY 2.21% 1.52% ^
Intermediate Term Credit CIU 2.06% 1.74% ^
California Muni CMF 1.99% 0.42% ^
MBS Bond MBB 1.83% 1.32% ^
US Total Bond BND 1.77% 1.39% ^
10-20Year Treasury TLH 1.73% 1.02% ^
Intermediate Treasury IEF 1.65% 1.06% ^
20+ Year Treasury TLT 1.63% 1.12% ^
National Muni MUB 1.24% 0.84% ^
Short Term Credit CSJ 1.09% 0.89% ^
Short Term Treasury SHY 0.53% 0.46% ^
New York Muni NYF 0.51% 0.06% ^
Treasury Bills SHV 0.07% 0.09% v

The trend score is defined as the average of 1,4,13,26 and 52 week total returns (including dividend reinvested).

click to enlarge

U.S. Long Term Investment Grade Bonds 04/29/2011



1 Yr

3 Yr

5 Yr

Avg. Volume (K)

1 Yr Sharpe

iShares iBoxx $ Invest Grade Corp LQD 8.41% 6.93% 6.4% 1,013 144.11%
Vanguard Long-Term Corp Bond I VCLT 9.05% NA NA 8 110.88%
SPDR Barclays Capital Long Corp LWC 6.83% NA NA 5 91.26%

Investors in the US Long Term Investment Grade Bond ETF with the highest volume, iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), have seen strong one year returns (8.41%). This is slightly below the highest performing ETF in the class, Vanguard's Long-Term Corporate Bond ETF (NASDAQ:VCLT), which returned 9.05% in the past year.

The future of the US Long Term Investment Grade Bond ETF market is uncertain, but investors are still likely to find high returns relative to other Fixed Income Assets. These ETFs offer strong diversification and stability and should offer above average performance going forward.

Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.