Top 10 Corporate Bond ETFs

In an era of low interest rates, and perhaps distrust of equity markets, investing for income has become popular and a challenge. Another factor is demographics as baby boomers age they reduce risk-taking and increase the desire for income.

There are many ETF sectors to choose from where yield is a prime consideration along with quality. With fixed income and bond,s the menu consists of the following: corporate, high yield, municipal, emerging market, government, international government, inflation-protected, mortgage-backed and preferred stock.

Many institutional investors (insurance companies and large pension plans) must have an allocation to bonds. Many asset allocation plans include bonds for individual investors. And, clearly savers and seniors especially gravitate to them for safety and income.

We'll be evaluating most of these issues and sectors beginning with corporate bonds. While we haven't included all that are available, we've sorted the top ten below by AUM (Assets under Management) but due to low prevailing interest rates also evaluate fees.

Corporate bond yields range from 2% to 4% overall. Investors should remember most corporate bond issues have call dates which would mandate early redemption at the option of the issuer. These can limit capital appreciation as existing issues are refinanced at lower interest rates.

Corporate bond supply is quite plentiful given low yields. This has made it compelling for companies to take advantage of low-cost funding for many purposes including stock buy-backs and rebuilding balance sheets.

Typically most bond issues and sectors are not correlated to stocks. This was especially true during the previous bear market. However, recently given unusual Fed policies combining ZIRP (Zero Interest Rate Policies) with QE (Quantitative Easing) these non-correlations have become less apparent. This may prove temporary.

We rank the top 10 ETFs by our proprietary stars system as outlined below. If an ETF you're interested in is not included but you'd like to know a ranking send an inquiry to and we'll attempt to satisfy your interest.

Strong established linked index
Excellent consistent performance and index tracking
Low fee structure
Strong portfolio suitability
Excellent liquidity

Established linked index even if "enhanced"
Good performance or more volatile if "enhanced" index
Average to higher fee structure
Good portfolio suitability or more active management if "enhanced" index
Decent liquidity

Enhanced or seasoned index
Less consistent performance and more volatile
Fees higher than average
Portfolio suitability would need more active trading
Average to below average liquidity

Index is new
Issue is new and needs seasoning
Fees are high
Portfolio suitability also needs seasoning
Liquidity below average

We feature a technical view of conditions from monthly chart views. Simplistically, we recommend longer-term investors stay on the right side of the 12 month simple moving average. When prices are above the moving average, stay long, and when below remain in cash or short. Some more interested in a fundamental approach may not care so much about technical issues preferring instead to buy when prices are perceived as low and sell for other reasons when high; but, this is not our approach. Premium members to the ETF Digest receive added signals when markets become extended such as DeMark triggers to exit overbought/oversold conditions.

For traders and investors wishing to hedge, leveraged and inverse issues are available to utilize from ProShares and Direxion and where available these are noted.

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