ETF Of The Week: Investing In Corporate Bonds

'LQD' is a textbook example of a fund that offers the right exposure in the right package.

Reviewed by: Lara Crigger
Edited by: Lara Crigger

At, we love to dig deep: to find hidden gems in overlooked pockets of the market and to spot breakouts before they become trends. But sometimes, the ETFs everybody already knows about are really the most interesting.

Case in point: the iShares iBoxx USD Investment Grade Corporate Bond ETF (LQD). With $35.3 billion in assets under management, LQD is the third largest bond ETF on the market. Only the iShares Core U.S. Aggregate Bond ETF (AGG) and the Vanguard Total Bond Market ETF (BND) are larger.

LQD is an ETF that does what it says, and does it well. That the fund has become so huge and so well-traded is not much of a surprise, maybe, but it does serve as a reminder of the success ETFs can find when they trade well and offer precisely the exposure that investors want.

One-Stop Shopping

The reasons behind LQD's popularity are twofold. First, the fund is essentially one-stop shopping; LQD offers a broad cross section of the corporate bond market, cutting across sectors and the full maturity spectrum.

The ETF's 2,094-bond portfolio touches banks (26%), consumer noncyclical companies (19%), communications firms (12%), tech stocks (11%) and more. Top holdings include bonds from Bank of America, J.P. Morgan Chase and AT&T. Other investment-grade corporate bond ETFs might skew more heavily to financials or industrials, in comparison.


(Use our stock finder tool to find an ETF’s allocation to a certain stock.)


Meanwhile, LQD's average maturity is 12.92 years, but the bulk of its portfolio skews much shorter term, falling between three and 10 years. That is counterbalanced by a sizable allocation to 20+ year bonds (28%), which helps lengthen the fund's average maturity.

The fund's nearest competitor, the Vanguard Intermediate-Term Corporate Bond ETF (VCIT), concentrates by design on bonds with five to 10 years remaining to maturity. That makes VCIT a narrower tool, one that must be combined with other vehicles to gain the same long-term bond exposure LQD has baked in.

Massive Liquidity In LQD

The other reason LQD is so popular is its massive liquidity. Though not the cheapest corporate bond ETF available—its expense ratio is 0.15%, over twice that of other iShares-brand corporate bond ETFs—its tradability is almost entirely unmatched in the fixed income space. Despite holding more than 2,000 bonds in its portfolio, LQD trades with just a 0.01% average spread; and on average, more than $1.2 billion in volume changes hands daily.

In fact, LQD is so liquid, that for traders, it has become a de facto proxy for investment-grade corporates as a whole, in the same way that the SPDR S&P 500 ETF Trust (SPY) is a proxy for U.S. large caps.

As such, LQD has become a common pair trade with another massively liquid bond ETF, the iShares iBoxx USD High Yield Corporate Bond ETF (HYG).

Source: Data as of Oct. 31, 2019.

Often traders will tactically shift between the two of them, playing spreads in performance and even using them as sentiment gauges: When investors are optimistic about the market, high-yield HYG will come into favor; and when they're feeling pessimistic, the relative safety of LQD will come back into vogue. LQD and HYG are so commonly traded together that one or both frequently appear at the top of our weekly flows charts.

While not the cheapest fund on the block, LQD isn't unreasonably priced; and the diversification and liquidity it offers makes it easy to see why investors keep on coming back. It just plain works.


Contact Lara Crigger at [email protected]

Lara Crigger is a former staff writer for and ETF Report.