Substitute HYG for LQD in SACEVS?

The Simple Asset Class ETF Value Strategy (SACEVS) includes an allocation to  iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) when the credit premium, measured monthly based on the difference between the  Moody’s Seasoned Baa Corporate Bonds yield and the T-note yield, is undervalued. Arguably, iShares iBoxx $ High Yield Corporate Bond ETF (HYG) is a more aggressive way than LQD to exploit an undervalued credit premium. To test the effect of this aggressiveness, we substitute HYG for LQD in the SACEVS Best Value and SACEVS Weighted strategies by dovetailing HYG returns to those of LQD as soon as HYG becomes available in April 2007. We then compare performances of SACEVS with and without HYG. Using monthly dividend-adjusted returns for HYG since April 2007 and data for baseline SACEVS since July 2002, all through September 2024, we find that: (more…)