Displaying items by tag: fixed income

Perhaps you’ve heard: inflation seems to have an insatiable appetite and the short term outlook in fixed income are being dominated by interest rates spikes by the central bank, according to ssga.com.

Ah, but there is a life preserver: longer term, structural factors are having more than a little sway in how  investors implement and oversee fixed income allocations.

'Did someone say life preserver’, grumbled the Skip from Gilligan’s Island?

‘Fraid so, dude.

And you want to know the punch that ETFs are packing in in the evolving landscape of fixed income? Well, consider ssga’s new global study, which surveyed 700 institutional investors and investment decision makers.

One key finding: there was a growth from assets under management from $574 billion in 2017 to $1.28 trillion in 2021, according to data recorded by the New York Stock Exchange. What’s more, the number of funds also accelerated like no one’s business over the same period – from 278 to almost 500.

As for non core sectors? The role of ETFs in asset allocation is propelling, according to its survey this year.

According to the report, 62% of investors who are ratcheting up their exposure to high yield corporate credit over the next 12 months indicated the chances are high they’ll leverage ETFs to do it. Ditto for 53% in terms of emerging market debt, according to pionline.com.

"Our 2022 survey shows that the role of ETFs in asset allocation is expanding to non-core sectors," said the report, "The Role of ETFs in a New Fixed Income Landscape." 

Try active fixed management, which has an eye on managing the different risk characteristics of the fixed income market, according to madisoninvestments.com.

When these risks bubble to the top, the price tag on a bond might go kerplunk, potentially jeopardizing  interest payments down the line. The upshot: your portfolio could take a hit. Yeah; ouch. Meantime, common as they are, passive buy and hold strategies – or ETFs – have a history of missing the mark on addressing risks linked with fixed income.

On the radar of active fixed management is managing the various risk characteristics of the fixed income market. A portfolio can act in light of market conditions with active decision making within a portfolio.

Okay, so if you’re searching high and low for white knuckle thrills, fixed income investing might not be the Uber pickup you’re looking for. 

But…Isn’t there always one? The market volatility sparked by the aftermath of the COVID pandemic, bond specialists might want to hold on tight, according to benefitscanada.com.

“There’s more yield in the marketplace, so bonds are becoming a better competitor to stocks. . . . You should be asking yourself, how do I get more to my portfolio’s core allocation?” said Jeffrey Moore, portfolio manager in the fixed income division at Fidelity Investments, during the Canadian Investment Review‘s 2022 Risk Management Conference, the site continued. “I think there’s a whole bunch of ways.”

While politics have made ESG a controversial topic recently, there’s no denying the fact that its popularity is still soaring. That was made abundantly clear with the release of the Index Industry Association’s (IIA) sixth annual global benchmark survey, showing a surge in ESG benchmarks worldwide. According to the survey, the total number of indexes climbed internationally by 4.43% over the prior year, with ESG indexes worldwide increasing by 55%. However, the bigger news was that fixed-income ESG indexes surpassed equity ESG indexes for the first time. In fact, fixed-income ESG indexes increased by an unprecedented 95.8%. This breaks the previous record of 61.09% last year. While equity ESG index growth was slower, it still grew at a high rate of 24.15 percent. Muni indexes had the strongest year for non-ESG fixed income, rising 10.86%. Rick Redding, IIA’s CEO, said the following concerning the survey: “The index industry continues to meet the needs of the marketplace by creating innovative solutions. Highlighted again this year by record growth in ESG, index providers are empowering investors with the ability to define, track and better understand an ever-broadening range of financial markets, sectors, investment styles, and asset classes.”

Finsum:A recent index survey revealed that fixed-income ESG indexes have surpassed equity ESG indexes for the first time.

While income investors are certainly enjoying higher yields this year, the past decade had not been as kind. The low to flat interest rates over the past ten years may have helped propel the economy and markets since the financial crisis, but they also made it quite difficult for investors to find income. So, Wall Street firms got creative and created complex investment products that offered higher yields. But with rates rising this year, those same products are putting firms at risk, which is why they're jostling to hedge those positions by investing in derivatives that benefit from higher volatility in the market. However, those derivatives are making volatility in the US government bond market even worse. Treasuries were already experiencing massive swings as investors bought derivatives to lessen their bond risk, while dealers made long-volatility bets to hedge their own exposure. This combination led to a huge jump in the MOVE Index, which measures the implied volatility of Treasuries via options pricing. In October, the index breached 160, which is near the highest level since the financial crisis. With additional money betting on the ups and downs of bond yields, this is only going to add more fuel to the fire.

Finsum:As firms increase in their purchases of volatility-linked derivatives to hedge risk, the treasury market is expected to become even more volatile.

VanEck recently announced the launch of an actively managed multi-asset income-focused ETF that offers diversified exposure to the highest-yielding segments of the equity income and fixed income markets. The VanEck Dynamic High Income ETF (INC), which trades on the NYSE, seeks to identify compelling sources of high income and dividends and builds a corresponding portfolio primarily of ETFs. INC's fixed income component is made up of exposure to "fallen angel" high-yield bonds, international and emerging market high-yield bonds, emerging market local currency bonds, and 10–20-year U.S. Treasuries. Its equity component will include exposure to dividend-paying stocks, business development companies, preferred securities, mortgage REITs, and MLPs. The fund’s management team, which is led by David Schassler, seeks to maximize yield per unit of risk by assessing volatility and correlation data to optimize and refine specific exposures. The ETF is also designed to adapt quickly to changing market conditions and take advantage of price anomalies in the market.

Finsum:VanEck adds to its asset allocation-focused ETF lineup with the launch of a multi-asset income fund that offers exposure to the highest-yielding segments of the market.