Corporate bonds, even those in the investment-grade camp, are much maligned this year owing to rising interest rates, but some experts argue that opportunity is emerging in this income-generating asset class.
Investors can position for an investment-grade corporate bond resurgence with the benefits of environmental, social, and governance (ESG) standards with the SPDR Bloomberg SASB Corporate Bond ESG Select ETF (RBND).
In fact, RBND, which follows the Bloomberg SASB® US Corporate ESG Ex-Controversies Select Index, could be an ideal way for income investors to revisit corporate debt owing to the exchange traded fund’s quality tilt and ESG benefits.
Another point in favor of RBND is that in the current environment, many investment-grade corporates are offering investors superior income with less volatility than high-yielding equities.
“These investment-grade bonds historically come with much less risk than their equity counterparts. Investors can earn more income and preserve capital with less risk and maintain exposure to many of the same companies via their bonds instead of their stocks,” according to BlackRock research.
RBND, which holds 400 bonds, currently sports a 30-day SEC yield of 5.27%. That’s a percentage investors expect to find — in a more sanguine market setting — on junk bonds, not investment-grade debt and certainly not on corporate issues that meet the high standards set forth by RBND’s underlying index.
Those standards could prove beneficial in a recession because economic contractions can spur credit downgrades. It’s possible that issuers with weak ESG scores could be most vulnerable to bearish credit ratings revisions. RBND could mitigate that risk for investors.
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RBND also represents evolution in the fixed income ETF space. Broadly speaking, bond ETFs are still a growth frontier for issuers, but add ESG to the mix, and that potency is elevated.
“The first bond ETFs largely delivered broad, index tracking exposure to entire markets or asset classes. Newer bond ETFs break down asset classes into more precise exposures. This increasing granularity are enabling for investors more sophisticated strategies unlocking novel access to diversified sources of yield,” according to BlackRock.
Additionally, RBND checks the ETF boxes of efficiency, liquidity, and a modest fee as it charges just 0.12%, or $12 on a $10,000 investment, per year. That’s favorable among ESG bond ETFs.
“The convenience, diversification and lower-cost of bond ETFs makes them prime candidates for persistent growth even in the fact of mounting inflation and rising rates as investors around the world look for better ways to access fixed income returns,” concluded BlackRock.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.