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Top 10 Corporate Bond ETFs

VCIT (Vanguard Intermediate Term-Corporate Bond ETF) tracks the Barclays Capital U.S. 5-10 Year Corporate Bond Index. AUM equal $518M while daily trading volume averages roughly 65K shares. Typical of Vanguard's fee structure is a .15% expense ratio.

Through May 2011 VCIT has returned 3.45% with a yield of 4.17%.

VCIT Top Ten Holdings

  1. Morgan Stanley 5.45%: 1.60%
  2. Bank America Funding 5.65%: 1.47%
  3. US Treasury Note 2.625%: 1.26%
  4. Bear Stearns Cos 6.4%: 1.13%
  5. Wells Fargo & Co New 5.625%: 1.01%
  6. Bank America Charlotte 5.3%: 0.96%
  7. General Electric Capital Corp 5.625%: 0.94%
  8. Citigroup 6.125%: 0.87%
  9. American Express 7%: 0.84%
  10. AT&T 5.5%: 0.82%

SCPB (SPDR Barclays Capital Short-Term Bond ETF) follows the Barclays Capital U.S. 1-3 Year Corporate Bond Index. AUM equal $360M while average daily trading volume is around 94K shares. For investors not wishing to pay higher fees, SCPB has a low expense ratio of only .12% which doesn't eat away too much of already low yields.

Through May 2011 SCPB has returned 1.21% and has a current yield of 1.87%.

SCPB Top Ten Holdings

  1. Wells Fargo & Co New 5.25%: 1.55%
  2. General Electric Capital Corp 4.8%: 1.15%
  3. General Electric Capital Corp 6%: 1.03%
  4. JP Morgan Chase 5.375%: 1.01%
  5. Verizon Wireless Capital 7.375%: 0.99%
  6. CS First Boston New York Sr 5%: 0.93%
  7. Goldman Sachs Group 5.25%: 0.89%
  8. Morgan Stanley 2.875%: 0.88%
  9. Citigroup 6.5%: 0.86%
  10. Goldman Sachs Group 5.45%: 0.83%

ITR (SPDR Barclays Capital Intermediate-Term Bond ETF) tracks the Barclays Capital Intermediate U.S. Corporate Index. The index includes dollar denominated debt from U.S. and non-U.S. industrial utility and financial institutions with less than 10 year durations. AUM equals $183M and the average daily trading volume is roughly 37K shares. The expense ratio is .15%.

Through May 2011 ITR has returned 2.7% and currently yields 3.5%

ITR Top Ten Holdings

  1. General Electric Cap Corp 4.8%: 1.43%
  2. Goldman Sachs Group 5.95%: 1.15%
  3. Jpmorgan Chase 4.65%: 1.04%
  4. Morgan Stanley 3.45%: 0.96%
  5. American Express 7.25%: 0.91%
  6. Verizon Comms 5.25%: 0.90%
  7. Wachovia Corp Global 5.5%: 0.88%
  8. Merrill Lynch Co Inc  6.875%: 0.84%
  9. Morgan Stanley 4.75%: 0.83%
  10. Citigroup 5.5%: 0.83%

VCLT (Vanguard Long-Term Corporate Bond ETF) tracks the Barclays Capital U.S. Long Corporate Index which is investment grade, dollar denominated with maturities greater than 10 years. AUM equal $104M and average daily trading volume is roughly 13K shares. Typical for Vanguard the expense ratio is a low .15%.

Through May 2011 VCLT has returned 2.95% and has a current yield of 5.34%.

VCLT Top Ten Holdings

  1. General Electric Capital Corp 5.875%: 1.74%
  2. News America 6.15%: 1.39%
  3. Time Warner Companies 6.625%: 1.34%
  4. Comcast Corp New 6.95%: 1.29%
  5. Verizon Communications 6.9%: 1.18%
  6. SBC Communications 6.15%: 1.16%
  7. Kraft Foods 6.5%: 1.08%
  8. HSBC Holdings 6.8%: 1.04%
  9. UnitedHealth Group 6.875%: 0.99%
  10. Goldman Sachs Group 6.75%: 0.99%

 

CORP (PIMCO Investment Grade Corporate Bond ETF) tracks the Bank of America/Merrill Lynch U.S. Corporate Index with dollar denominated investment grade issues with maturities greater than one year. CORP is a relatively new issue (September 2010) and has AUM of $83M with average daily trading volume of around 6K shares. The expense ratio is .20%. A feature is CORP rebalances its holdings monthly which should be a tax consideration for some investors.

Holdings for CORP are unavailable at this time.

Through May 2011 has returned 1.72% and per PIMCO's website the current 30 day yield is 3.57%.

The choices for investors looking for safer returns with higher yields away from Treasury bonds generally will turn to investment grade corporate bonds first.

The list is long and sometimes quite repetitive as components vary little one to another. The real choice here is maturity selection or what duration risk are you willing to assume? The longer out the curve you go the greater the return and risk to principal.

As a former bond principal I worry about price risks now as most sectors are overbought, offer negative yields and have too much exposure to bank risks. It may be I suffer from the "the more you know about something, the less you like it" syndrome. Nevertheless, yields are skimpy and risks from budding inflation high with longer maturities. With shorter maturities you do little better than yields from the bank after headline inflation. So, given the environment with many uncertainties "cash" from money market funds and/or T-Bills is just fine for now.

Remember, many institutions (insurance companies, pension plans and many asset allocation models) call for large bond allocations. Some insurance companies may only own bonds given their actuarial table requirements. If you're an individual investor you're not under the same pressures no matter what you hear in the media.

Further previous non-correlations of bonds to stocks for example have been whittled away given current monetary policies of the Fed. This only adds to risks already mentioned.

If you must buy them, our bias generally is to more liquid issues unless we utilize them in Lazy portfolio approaches. Just always remember ETF sponsors must issue and many times their interests aren't aligned with yours. They have a business interest and wish to have a competitive presence in any popular sector.

For further information about portfolio structures using retail or other ETFs find more here.

You may address any feedback to: feedback@etfdigest.com  

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Dave Fry is founder and publisher of ETF Digest, Dave's Daily blog and the best-selling book author of Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management, published by Wiley Finance in 2008. A detailed bio is here: Dave Fry.

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