Principal Funds Launches Active Bond ETF

Principal Funds launched a fund on Apr 19, focused on providing exposure to the investment grade corporate bond space of the United States fixed income market.

Principal Investment Grade Corporate Active ETF (MI:IG) is an actively managed fund that strives to outperform the Bloomberg Barclays (LON:BARC) U.S. Corporate Investment Grade Bond Index.

Fund Characteristics

The fund seeks to provide exposure to U.S. investment grade corporate bonds. Its primary objective is to provide current income, with capital appreciation as the secondary objective. Per the prospectus, the fund will invest in investment-grade corporate bonds rated BBB- or higher by S&P or Baa3 or higher by Moody’s.

“The Fund strives to outperform its benchmark, the Bloomberg Barclays U.S. Corporate Investment Grade Bond Index, over a full market cycle. The Fund seeks to provide current income and, as a secondary objective, capital appreciation by investing in primarily investment-grade corporate bonds,” per an etftrends article, citing a statement by Principal.

The fund amassed $19.8 million in AUM within a few days of trading. It charges a fee of 26 basis points a year. Although it seeks to invest in corporate bonds, the fund can also invest in foreign and domestic government debt, according to the prospectus.

How Does it Fit in a Portfolio?

Being an all-term fixed income focused ETF, this fund offers a diversified exposure in terms of maturity. Moreover, its investment grade focus safeguards investors at times of market uncertainty. Another positive for the fund is its active management mandate, exposing investors to the expertise of managers’ market timing skills.

Moving to interest rates, CME’s Fed watch tool predicts two more rate hikes for the year. However, in case there is a steep increase in consumer prices, Fed’s stance might change. Although rate hikes are a negative for this space, this fund can be a great way to obtain exposure to the fixed income segment of one’s portfolio, as it safeguards investors from unnecessary credit risk, while also providing decent yields.

Competition

The fund faces slight competition from other corporate bond ETFs in the space. However, owing to its larger focus on U.S. investment grade corporate bonds and the active management mandate, its peer ETFs differ slightly with regard to their investment objectives.

iShares iBoxx $ Investment Grade Corporate Bond ETF LQD

This fund has AUM of $32.0 billion and seeks to provide exposure to investment-grade corporate bonds. It charges 15 basis points in fee per year and holds 1901 bonds in its portfolio. The fund targets the intermediate end of the yield curve as it has a weighted average maturity of 12.55 years and an effective duration of 8.38 years. The fund has lost 4.5% year to date and 0.1% in a year.

Vanguard Intermediate-Term Corporate Bond ETF VCIT

This fund has AUM of $18.2 billion and seeks to provide exposure to investment-grade corporate bonds. It charges 7 basis points in fee per year and holds 1749 bonds in its portfolio. The fund targets the intermediate end of the yield curve as it has an average maturity of 7.5 years and average duration of 6.4 years. The fund has lost 3.6% year to date and 0.8% in a year.

PIMCO Investment Grade Corporate Bond Index Exchange-Traded Fund CORP

This fund has AUM of $896.2 million and seeks to provide exposure to investment-grade corporate bonds. It charges 20 basis points in fee per year and holds 447 bonds in its portfolio. The fund targets the intermediate end of the yield curve as it has an effective maturity of 10.61 years and effective duration of 6.79 years. The fund has lost 3.9% year to date but has returned 0.2% in a year.

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