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These two ETFs offer exposure to fixed-income assets, but investors can choose from a range of bond sectors. The VanEck Short Muni ETF (SMB) and the iShares 1-5 Year Investment Grade Corporate Bond ETF (IGSB) are both designed for relatively low-duration bond exposure, though they differ in the type of debt they hold.
SMB tracks short-term tax-exempt municipal bonds, while IGSB tracks investment-grade U.S. corporate bonds.
IGSB holds 4,532 bonds, focusing on investment-grade corporate debt with maturities of 1 to 5 years. The fund is nearly two decades old. Its largest positions include bonds issued by major companies such as Goldman Sachs (GS) and Bank of America (BAC). The portfolio primarily holds A- and BBB-rated bonds, with each class carrying at least 40% weight.
SMB is about two years younger than IGSB and has a smaller asset base with a more concentrated portfolio, holding 334 municipal bonds. A majority of the ETF’s holdings are in the AA class, with 22% rated A and another 17% rated AAA.
Choosing between SMB and IGSB may come down to volatility preference. Both ETFs show similar one-year returns and have fallen around 4% over the last five years. Corporate bonds are generally more exposed to default and volatility than municipal bonds, but they often provide higher yields and potentially stronger price return.
Municipal bonds are typically less risky than corporate bonds but may deliver slower returns. SMB’s tilt toward higher-rated bonds can further reduce risk because higher-rated issuers have a smaller chance of default. In contrast, IGSB holds zero AAA-rated bonds.
Bond-focused ETFs are often among the slowest-growing in price compared with traditional stock funds. However, the higher dividend yields available from these strategies can make them attractive for income-oriented investors.
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