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Is iShares Investment Grade Bond Factor ETF (IGEB) a Strong ETF Right Now?

Zacks Equity Research
·4-min read

Making its debut on 07/11/2017, smart beta exchange traded fund iShares Investment Grade Bond Factor ETF (IGEB) provides investors broad exposure to the Investment Grade Corporate Bond ETFs category of the market.

What Are Smart Beta ETFs?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

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There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

The fund is managed by Blackrock, and has been able to amass over $205.61 million, which makes it one of the average sized ETFs in the Investment Grade Corporate Bond ETFs. Before fees and expenses, IGEB seeks to match the performance of the BlackRock Investment Grade Enhanced Bond Index.

The BlackRock Investment Grade Enhanced Bond Index comprises of U.S. dollar-denominated, investment-grade corporate bonds.

Cost & Other Expenses

When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.

Operating expenses on an annual basis are 0.18% for IGEB, making it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 3.48%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

Looking at individual holdings, Jpmorgan Chase & Co-2.74%-10-15-30 accounts for about 0.56% of total assets, followed by Jpmorgan Chase & Co-5.00%-12-31-49 and Bank Of America Corp-5.88%-12-31-49.

Its top 10 holdings account for approximately 5.32% of IGEB's total assets under management.

Performance and Risk

Year-to-date, the iShares Investment Grade Bond Factor ETF has added roughly 4.34% so far, and is down about -8.25% over the last 12 months (as of 01/27/2023). IGEB has traded between $41.26 and $51.07 in this past 52-week period.

IGEB has a beta of 0.27 and standard deviation of 8.68% for the trailing three-year period. With about 413 holdings, it effectively diversifies company-specific risk.

Alternatives

IShares Investment Grade Bond Factor ETF is not a suitable option for investors seeking to outperform the Investment Grade Corporate Bond ETFs segment of the market. Instead, there are other ETFs in the space which investors should consider.

Vanguard ShortTerm Corporate Bond ETF (VCSH) tracks Bloomberg Barclays U.S. 1-5 Year Corporate Bond Index and the Vanguard Total International Bond ETF (BNDX) tracks Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index. Vanguard ShortTerm Corporate Bond ETF has $41.28 billion in assets, Vanguard Total International Bond ETF has $45.82 billion. VCSH has an expense ratio of 0.04% and BNDX charges 0.07%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Investment Grade Corporate Bond ETFs.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

iShares Investment Grade Bond Factor ETF (IGEB): ETF Research Reports

Vanguard ShortTerm Corporate Bond ETF (VCSH): ETF Research Reports

Vanguard Total International Bond ETF (BNDX): ETF Research Reports

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Zacks Investment Research