IEI Offers Low Risk While IGIB Offers High Yield

iShares 5-10 Year Investment Grade Corporate Bond ETF (NASDAQ:IGIB) stands out for its low costs and high yield, while the iShares 3-7 Year Treasury Bond ETF (NASDAQ:IEI) it offers low volatility and an approach that keeps only Treasury money.

Both IGIB and IEI are popular bond ETFs from iShares, but they serve different roles. IGIB focuses on medium-term investment grade corporate bonds, while IEI targets US Treasuries with slightly shorter maturities. This comparison highlights important differences in cost, risk, and portfolio construction for investors considering these two fixed income funds.

The 1-year return represents the total return over the next 12 months.

IEI comes with a much higher cost ratio, costing almost four times more than IGIB. IGIB not only looks affordable, but also delivers a high dividend yield, which may attract income-oriented investors.

IEI holds a concentrated portfolio of eighty-three US Treasury bonds with maturities between three and seven years, making it a pure play on government debt. The fund has been around for more than nineteen years, and its largest holdings are Treasury notes maturing in 2029, 2030, and 2031. This convenience may suit investors who want high credit safety and direct interest rate exposure without company risk.

IGIB, by contrast, invests in approximately 3,000 investment-grade corporate bonds, providing broad exposure to major US companies and financial institutions. Its major corporate bonds each make up less than a quarter of a percent of the total fund. IGIB’s business tilt brings high leverage and credit risk, but also great diversification across issuers.

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The iShares 5-10 Year Investment Grade Corporate Bond ETF offers investors greater diversification among bond issuers. The largest bond issue it owns makes up about 0.25% of the portfolio. And, the top producer, JPMorgan Chase (NYSE:JPM) it accounts for only 2.3% of the total portfolio.

The iShares 3-7 Year Treasury Bond ETF does not offer investors any diversification. It is invested entirely in US Treasuries maturing between 2029 and 2033.

Investors looking for the stability that comes with government-backed wealth have not given up when it comes to the returns offered by these two ETFs. Over the past five years the iShares 5-10 Year Investment Grade Corporate Bond ETF has produced a total return of just 8.37%, which is nothing to write home about.

In addition to the stability that comes with Treasuries, IEI tends to move independently of the stock market. With exposure to corporate debt, IGIB is more likely to track the overall stock market.

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JPMorgan Chase is the advertising partner of Motley Fool Money. Cory Renauer has no position in any of the listed stocks. The Motley Fool has positions and recommends JPMorgan Chase. The Motley Fool has a policy of disclosure.

IEI Offers Low Risk While IGIB Delivers High Yield was first published by The Motley Fool.