Investing

Looking to Bet on Perfect AAA Credit Ratings? Play These ETFs

Sanghamitra Saha

Published: August 3, 2023 11:43 pm

Last Updated: August 4, 2023 10:45 am

Credit ratings are a critical factor when it comes to investing as they indicate the creditworthiness of an entity, be it a company or a country. A higher credit rating implies a lower risk of default, making it easier and cheaper for the entity to borrow money.

In times of easy money and cheap debt, credit ratings might have seemed less relevant as companies could easily access funds regardless of their rating. By borrowing, companies continued to boost return on equity and impress investors.

However, gone are those days. The Fed has hiked rates multiple times since March 2022 and took its benchmark overnight interest rate to the 5.25%-5.50% range in July. With higher interest rates, debt is no longer as cheap, leading credit ratings to gain importance all over again.

Shares of the 10 S&P 500 companies with the highest credit ratings have outperformed (up more than 23.3%) those of the 10 companies with the lowest credit ratings (up 15.4%) this year, per an article published on investors.com.

Inside United States’ Credit Rating Downgrade by Fitch

Rating agency Fitch downgraded the United States to AA+ from AAA this week, expecting fiscal deterioration over the next three years and repeated last minute debt ceiling negotiations that can pressurize the government’s ability to pay its bills. U.S. stocks slumped on Wednesday following the news.

In light of this event, investors might be interested in identifying companies and countries that still hold the desirable ‘AAA’ credit rating. Given this context, here are companies and countries currently holding a ‘AAA’ credit rating that investors may consider as relatively safer options for investment.

AAA Stocks in Focus

Just two companies in the S&P 500, Johnson & Johnson JNJ and Microsoft MSFT, maintain their AAA credit ratings from S&P, per an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.

J&J has been suffering due to legal issues and its stock has failed to gain this year but Microsoft can always be played in the form of ETFs. Technology Select Sector SPDR Fund XLK, Vanguard Information Technology ETF (VGT) and Fidelity MSCI Information Technology Index ETF (FTEC) are some of the ETFs each of which invests around 20% to MSFT.

AAA Countries in Focus

The Fitch Ratings’ downgrade of the U.S. puts the focus on the countries still holding onto the sought-after top credit grade – AAA. Economies with the highest credit rating at S&P Global Ratings, Fitch and Moody’s Investors Service include Germany, Denmark, Netherlands, Sweden, Norway, Switzerland, Luxembourg, Singapore and Australia. Canada is rated AAA by two of the ratings companies, per Bloomberg.

While economists do not seem worried about the United States’ ability to pay its bills (even after the latest Fitch Downgrade and the S&P’s downgrade in 2011), investors can try their luck by investing in AAA-rated economies though ETFs.

These ETFs include iShares MSCI Switzerland ETF EWL, Global X MSCI Norway ETF NORW, iShares MSCI Singapore ETF EWS, iShares MSCI Germany ETF EWG, iShares MSCI Denmark ETF EDEN, iShares MSCI Netherlands ETF EWN, iShares MSCI Australia ETF EWA.

Microsoft Corporation (MSFT): Free Stock Analysis Report

Johnson & Johnson (JNJ): Free Stock Analysis Report

Technology Select Sector SPDR ETF (XLK): ETF Research Reports

iShares MSCI Australia ETF (EWA): ETF Research Reports

iShares MSCI Germany ETF (EWG): ETF Research Reports

Global X MSCI Norway ETF (NORW): ETF Research Reports

iShares MSCI Singapore ETF (EWS): ETF Research Reports

iShares MSCI Netherlands ETF (EWN): ETF Research Reports

iShares MSCI Switzerland ETF (EWL): ETF Research Reports

iShares MSCI Denmark ETF (EDEN): ETF Research Reports

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