VettaFi Voices On: Debt Ceiling Investing

This week, the VettaFi Voices come together for an abbreviated chat about an important topic: the debt ceiling. How should investors be looking at the looming, near-term externality of a default? What kind of investments stand out in such an environment? What can be done from an investing perspective to deal with the debt ceiling?

Todd Rosenbluth, head of ETF research: We have seen strong engagement in investment-grade corporate bond ETFs. Advisors want high-quality, stable income and can get the benefits of diversification. I wrote a chart of the week on this recently focused on not just broad ETFs like the Vanguard Intermediate-Term Corporate Bond ETF (VCIT) and the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), but also smart-beta and active ETFs. Others include the Goldman Sachs Access Investment Grade Corporate Bond ETF (GIGB) and the iShares North American Natural Resources ETF (IGE). Those benefit from a higher-quality, fundamental focus.

I also think dividend strategies might become popular as corporate profits have been stronger than expected, and the income is stable. Of course, there are dividend growth ETFs, too. Investors can consider something like the ProShares S&P 500 Dividend Aristocrats ETF (NOBL). They also can consider funds such as the Vanguard Dividend Appreciation ETF (VIG) and the WisdomTree US Quality Dividend Growth Fund (DGRW). They have more of a focus on companies with strong fundamentals that have raised or plan to raise dividends.

I should add, too, that there are high dividend yield ETFs. Investors can consider the Vanguard High Dividend Yield Index ETF (VYM) and the iShares Core High Dividend ETF (HDV). Like HDV, the ALPS Sector Dividend Dogs ETF (SDOG) offers higher yields.

Advisors likely have more confidence in blue-chip companies meeting debt obligations or paying dividends than in the US government—as scary as that is.