Weird ETFs To Buy #3 — The SPDR BofA Merrill Lynch Crossover Corporate Bond ETF
One of the cool thing about the ETF boom is that retail investors have access to wide range of fixed-income opportunities once reserved only for high-net-worth and institutional investors. The SPDR BofA Merrill Lynch Crossover Corporate Bond ETF (XOVR) is one example.
Crossover bonds are standard corporate bonds that straddle the line between junk and investment-grade. Basically, these bonds are rated at levels where the lower end of the investment grade debt meets the high end of junk grade debt — typically around Baa1 to Ba3/BBB+ to BB- credit ratings.
By betting on these crossover bonds, investors are treated to higher yields than most corporates, but generally lower risk than straight junk bonds. These bonds have also provided some of the best total returns versus their respective twins.
XOVR tracks 481 of these bonds and currently yields a healthy 4.99%. That’s more than high-rated investment grade corporates, but only slightly lower regular junk bonds.
All in all, the often-ignored XOVR ETF can be used to increase the yield of a fixed-income portfolio without having to dive deep in speculative bonds. Expenses for the ETF runs 0.3%.