Getting an intermediate bond exposure can help investors distinguish between getting more yield while limiting credit risk by using an ETF like the FlexShares Credit-Scored US Corporate Bond Index Fund (SKOR).
SKOR seeks investment results that generally correspond to the price and yield performance, before fees and expenses, of the Northern Trust US Corporate Bond Index. The Underlying Index reflects the performance of a broad universe of high quality US dollar denominated corporate bonds which can potentially offer a higher total return than the broader high quality corporate bond market. as represented by the Northern Trust US Investment Grade Corporate Bond Index. .
With inflation on the move, getting a sufficient return is necessary to avoid revenue erosion. At the same time, investors will want to limit duration to avoid rate risk as yields rise.
“SKOR seeks investment results that generally correspond to the price and yield performance, before fees and expenses, of the Northern Trust US Corporate Bond Index”, FlexShares said. “The Underlying Index reflects the performance of a broad universe of U.S. dollar-denominated investment-grade corporate bonds that can potentially offer a higher total return than the overall investment-grade corporate bond market, such as represented by Northern Trust US Investment Grade Corporate Bond Index. ”
Advantages of Bond ETFs
Having bond holdings in an ETF certainly has its advantages. Whether short, intermediate (like SKOR) or long duration, investors can gain targeted exposure to bonds that match their specific investment objectives.
“I like to use multiple bond exchange-traded index funds as my main holding,” wrote Michael Aloi, CFP® in one Article by Kiplinger. “I can use an inflation-protected securities fund, a mid-term bond fund, and a short-term bond fund as my core fixed income position. High-income investors can use municipal bond index funds to generate tax-exempt federal interest (although municipal bond interest may still be subject to state and local taxes and alternative minimum tax ).
Aloi also noted the benefits of using ETFs, especially those that track a passive index. Two main advantages relate to the cost and diversification of assets.
“Index ETFs are generally less expensive than actively managed funds. Cost containment is crucial in a low-yield world,” added Aloi. “Bond index funds also provide instant diversification. Different types of bonds behave differently – some bonds are more interest rate sensitive – so diversification is important.
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