Even with the Federal Reserve not yet obliging bond investors with a 2025 interest rate cut, corporate bonds have been solid performers. Alone, that could be enough motivation for some investors to examine the asset class. Selective market participants may want to consider going with traditional fixed income benchmarking. They could examine fundamental strategies such as the WisdomTree U.S. Corporate Bond Fund (QIG ).
The fund follows the WisdomTree U.S. Quality Corporate Bond Index. It has turned in admirable YTD performance. And more upside could be in store as corporate bond investors become more discerning.
The WisdomTree ETF is ready to answer that call. That’s because its index employs a multipart screening methodology conducive to identifying compelling credit opportunities as well as corporate debt trading at attractive valuations. So it can be said QIG does an active manager’s job with the benefits of being an index-based ETF.
Why QIG Could Shine Into Year-End
Investment-grade corporates and ETFs like QIG deserve some applause. That’s because they’ve performed admirably against the backdrop of a weaker dollar. That’s no small feat when considering the greenback’s first-half showing was its worst in more than five decades. In fact, foreign investors continue embracing dollar-denominated, U.S.-issued corporate bonds.
“While supply helped investors cover their underweights, they have had to absorb new inflows. In US IG credit, for instance, foreign demand has proven surprisingly resilient despite the significant risks those investments face from a weaker US dollar,” noted Olivier De Larouziere of BNP Paribas.
In the months ahead, the case for QIG could be further supported by diminishing expectations that a recession will hit the U.S. economy and the fact that most investment-grade issuers are in solid places financially and aren’t at risk of downgrades or defaults.
“We believe companies are generally in good shape with stable leverage, improving revenues and margins, and a more disciplined approach to capital allocation. Companies have built sufficient cushions to face the risks a slowing economy could pose,” added De Larouziere.
Specific to QIG, the ETF’s use of a valuation-intensive methodology could be appealing at a time when there is ample value in the investment-grade corporate bond space. That indicates it’s a good time for investors to be selective — an objective made easier with QIG.
Strong Technicals + Supportive Fundamentals
“Valuations are approaching the tights of the year once again as strong technicals add to the supportive fundamentals. BBB rated corporate bonds now represent 46% of US IG benchmarks – the lowest level in 10 years,” concluded De Larouziere.
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