Launched on 07/11/2017, the iShares Investment Grade Bond Factor ETF (IGEB) is a smart beta exchange-traded fund offering broad exposure to the market’s investment grade corporate bond ETF category.
What are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a specific segment of the market.
A good option for investors who believe in market efficiency, market cap weighted indexes offer a cheap, convenient and transparent way to replicate market returns.
On the other hand, some investors who believe it is possible to beat the market through superior stock selection choose to invest in another class of funds that track no-limit weighted strategies – popularly known as smart beta.
Based on specific fundamental characteristics or a combination of these, these indices attempt to select stocks that have a better chance of performing risk and return.
The smart beta space gives investors many different choices, from equal weighting, one of the simplest strategies, to more complex ones like fundamental weighting and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund and Index Sponsor
The fund is managed by Blackrock and has managed to accumulate over $234.86 million, making it one of the mid-sized ETFs in investment grade corporate bond ETFs. IGEB seeks to equal the performance of the BlackRock Investment Grade Enhanced Bond Index before fees and expenses.
The BlackRock Investment Grade Enhanced Bond Index is comprised of investment grade corporate bonds denominated in US dollars.
Expenses and other expenses
For ETF investors, expense ratios are an important factor when looking at fund returns; over the long term, cheaper funds actually have the ability to outperform their more expensive cousins, all other things being equal.
Annual operating expenses for IGEB are 0.18%, which puts it on par with most similar products in the space.
It has a trailing 12-month dividend yield of 4.85%.
Sector exposure and largest holdings
Although ETFs offer diversified exposure that minimizes the risk of individual stocks, investors should also consider the actual holdings in the fund. Fortunately, most ETFs are very transparent products that disclose their holdings on a daily basis.
When you look at individual holdings, Hsbc Holdings Plc-3.97%-05-22-2030 represents about 0.54% of the fund’s total assets, followed by Transcanada Trust-5.30%-03-15-2077 and Targa Resources Partners Lp-4.88 %-02-01-2031.
Its top 10 holdings represent approximately 5.24% of IGEB’s total assets under management.
Performance and risk
So far this year, IGEB has lost about -1.34% and is up about 4.05% in the last one year (as of 10/20/2023). Over the past 52-week period, the fund has traded between $41.19 and $45.54.
IGEB has a beta of 0.29 and a standard deviation of 7.33% for the last three-year period. With around 417 holdings, it effectively diversifies company-specific risk.
The iShares Investment Grade Bond Factor ETF is a sensible option for investors looking to outperform the investment grade corporate bond ETFs segment of the market. However, there are other ETFs in the space that investors could consider.
The Vanguard Short-Term Corporate Bond ETF (VCSH) tracks the Bloomberg Barclays US 1-5 Year Corporate Bond Index and the Vanguard Total International Bond ETF (BNDX) tracks the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index. Vanguard Short-Term Corporate Bond ETF has $35.87 billion in assets, Vanguard Total International Bond ETF has $50.36 billion. VCSH has an expense ratio of 0.04% and BNDX charges 0.07%.
Investors looking for cheaper, lower-risk options should consider traditional market-cap-weighted ETFs, which aim to match the returns of investment-grade corporate bond ETFs.
To learn more about this product and other ETFs, browse products that fit your investment goals, and read articles about the latest developments in the ETF investment universe, please visit the Zacks ETF Center.
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iShares Investment Grade Bond Factor ETF (IGEB): ETF Research Reports
Vanguard Short-Term Corporate Bond ETF (VCSH): ETF Research Reports
Vanguard Total International Bond ETF (BNDX): ETF Research Reports
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