Top 3 Investment-Grade US Corporate Bond ETFs for Investors

In recent years, corporate bond ETFs have gained significant popularity among investors, primarily due to their higher returns compared to government bond ETFs. These funds are considered safer than stocks because, in case of a company's bankruptcy, bondholders are prioritized for repayment before stockholders. Nonetheless, corporate bond ETFs carry a higher risk than other ETF types, so investors should weigh the potential rewards against possible risks.

Popular Corporate Bond ETF Categories in the U.S.
The main types include investment-grade and high-yield ETFs, detailed below:

• Investment-Grade ETFs – These funds include bonds with excellent credit ratings, indicating low risk. Although they yield lower returns than high-yield ETFs, they are ideal for conservative investors seeking stable growth.
• High-Yield or Junk ETFs – Offering higher income potential, these ETFs contain bonds with lower credit ratings, thus involving greater risk. Investors pursuing aggressive gains may consider these but should carefully analyze performance, return rates, and risk levels.

Leading Investment-Grade US Corporate Bond ETFs
For those new to bond investing, investment-grade ETFs are the safer choice. Here are the top three options:

• iShares iBoxx $ Investment-Grade Corporate Bond ETF (LQD) – Managed by BlackRock, with approximately $37 billion in assets, LQD has been active since 2002. It tracks the Markit iBoxx USD Liquid Investment-Grade Index and offers about 5.68% annual returns. Its holdings include nearly 1,800 bonds from sectors like finance and consumer goods, with prominent issuers such as Bank of America, Goldman Sachs, and Microsoft. Known for strong performance and low fees, LQD is suitable for diverse portfolios. Returns over different periods are roughly 5.59% (1 year), 2.25% (3 years), and 3.57% (5 years).
• Vanguard Short-Term Corporate Bond ETF (VCSH) – With around $26 billion in assets, VCSH invests in bonds maturing in 1 to 5 years. Its focus on short-term bonds makes it less sensitive to rising interest rates. It tracks the Barclays U.S. 1-5 Year Corporate Bond Index, comprising over 2,100 holdings mostly from financial and industrial sectors. Major issuers include Oracle, Bank of America, and GE Capital. Returns for VCSH are approximately 0.60% (1 year), 1.47% (3 years), and 1.61% (5 years).
• Vanguard Intermediate-Term Corporate Bond ETF (VCIT) – Holding about $21 billion, VCIT tracks the Barclays U.S. 5-10 Year Corporate Bond Index. It maintains roughly 1,740 holdings, mainly from finance, energy, and consumer sectors. Top issuers include CVS Health, Vodafone, and Broadcom. Like VCSH, it invests 80% of assets in indexed bonds. Expected annual returns are around 1.18% (1 year), 2.20% (3 years), and 2.81% (5 years).

Additional ETF Options

• iShares Floating Rate Bond ETF (FLOT)
• iShares Short-Term Corporate Bond ETF (IGSB)
• iShares Intermediate-Term Corporate Bond ETF (IGIB)
• SPDR Portfolio Short-Term Corporate Bond ETF (SPSB)
• SPDR Barclays Capital Investment-Grade Floating Rate ETF (FLRN)