Momentum is building for a September interest rate cut by the Federal Reserve. And many investment-grade corporate borrowers are in solid financial shape. So there’s a case for adding duration with high-quality corporate debt. That objective’s achievable with a variety of ETFs. These include the WisdomTree U.S. Corporate Bond Fund (QIG ).
QIG tracks the WisdomTree U.S. Quality Corporate Bond Index. That index aims to identify investment-grade corporate bonds that sport stout income traits and compelling valuations. That’s a potentially potent tandem in the world of company-issued debt.
Likewise, QIG’s effective duration of 6.55 years could be just right at a time when monetary easing is expected to be gradual.
“Most central banks will gradually ease policy rates from decade highs as economic activity continues to cool,” noted Moody’s Investors Service. “The latest data on jobs and inflation strongly suggest that the US Federal Reserve will move in September. Although most policymakers will be cautious and emphasize data dependency in their communication initially, they should become less guarded as we move into 2025.”
QIG Ready to Shine
QIG is arguably a hidden gem in the corporate bond ETF fray. As such, it offers investors some noteworthy benefits. That includes scant direct exposure to the commercial real estate space. It also includes that it appears likely the U.S. economy will avoid a hard landing.
“We predict growth in major G-20 economies will slow towards potential. [We also] believe recent market fears of a US economic recession are overblown,” added Moody’s. “Nevertheless, this soft landing will probably be bumpy at times. [It will also] likely be accompanied by bouts of financial market volatility in response to unexpected developments, including weak data.”
If a recession materializes, QIG could sport a safe haven for risk-tolerant fixed income investors for multiple reasons. First, the ETF allocates more than 44% of its weight to bonds rated AA and A, confirming strong credit quality.
QIG's Allure
Second, none of QIG’s holding exceed a weight of 1.13%. So even if there were some downgrades within the ETF’s portfolio QIG could prove sturdy. Election Day is drawing closer. So the aforementioned pair of points could add to the allure of QIG as an option for income investors.
“Despite the potential for cost-of-living pressures to trigger major shifts in leadership, the dominant theme mid-way through the biggest election year in history has been continuity. Nevertheless, the outcome of the US elections in November could have wide-ranging credit effects both within and outside the US,” concluded Moody’s.
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