Bonds: Total Market
Risk adverse?
Well, perhaps you’ve pulled up to the right window. After all, a big upside of active fixed income management: risk mitigation, according to npifund-com.
Possible problems – before they damage client portfolios – can be traded out of by alert active fixed income managers. What’s more, the site states: “We believe the next problem to address with active management is the leverage bubble in corporate debt. The disproportionately large BBB market, in particular, “poses a risk to the markets in the event of a wave of downgrades under the right recessionary scenario.”
Meantime, it seems investment strategy and fixed income teams at Vanguard have been burning a little midnight oil.
According to corpaemdisp.essp.c1.vanguard.com, new research from the company’s teams taken a close look into how the growth of a diverse coupon stack in the municipal bond market, followed by, down the line, “aggressive Fed rate hikes put negative convexity front and center in active muni investing.”
Those active managers steering through this environment of souped up rates are gaining leverage. Why? Because they’ve been able to wrap their heads around how to manage negative convexity risk – and they’ve been prudent while they’re at it.
Share and share alike?
Well, tell that to exchange traded funds. While they burgeoned in popularity, when it comes to sharing equally – or consistently – in the billions of dollars investors pluck down on them monthly, they don’t exactly participate, according to thinkadvisor.com.
An ETF focused on environmental, social and governance investing was one that trailed the pack. Year to date, it experienced the largest withdrawals. “(That suggests) that there may be some backlash against ESG from investors,” said Sumit Roy, senior ETF analyst at ETF.com.
In any event, as an investor, want a cost effective way to diversify your portfolios across various asset classes: you’ll get that from top ETFs, according to Investopedia.com. The work of ETFs, it seems, is never done. Not only does it track a particular index, sector or commodity and trade on a stock exchange, the way in which it goes about it mirrors that of a regular stock, putting investors in a position to wield greater flexibility.
Stress in the bank sector? Sure, okay.
Uncertainty spawned by the U.S debt ceiling? Yep, no one can legitimately propose an argument to the contrary.
Political uncertainly festering in Russia? Well, yeah, if you’ve watched even a scintilla of news lately.
Despite that exhaustive list, the global economy’s hanging tough, strutting its resilience, according to gsam.com, which believes a restored allocation to core fixed income can help boost the ability to reinforce the resilience off portfolios to periods of bearish sentiments. That’s especially in light of a bounce in yields which have bolstered the protective power and income benefits of high quality bonds.
Meantime, the economy continues to perform better than expected, seemingly shucking aside rates hikes that have been a mainstay since last March, according to privatewealth-insights-bmo.com.
Consumers, buoyed by high employment, not to mention escalating wages, have hung tough.
For this cycle, with Canadian rates riding high and the stream of rate hikes -- for the most part, at least -a thing of the past, the time to take another look at fixed income allocations is right.
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It seems there’s not much, um, fixed, about fixed income. That’s because, pre tell, in the second half of the year, conditions there likely will be choppy, according to dayhagan.com.
Ongoing tightening by central banks in the developed markets is pushing up short term yields, while long term yields are feeling the weight of slower growth and a pull back in inflation seemingly on the horizon later this year.
Meantime, the fixed income allocation strategy experienced scant changes in sector allocations coming into the month.
Now, want to talk about a calorie burner? Presenting active, active and more of it.
As in, as if you had to ask, active management.
"Everywhere we turn, we are hearing that a new dawn is upon us, and it is once again the time for active management. Many would be surprised that I totally agree, said Jason Xavier, head of EMEA ETF Capital Markets at Franklin Templeton, according to global.beyondbullsandbears.com.
It could be argued – as outlined in his predictions for the year – that the decade of “cheap” money and unprecedented low interest rates are a thing of the past and that those with the chops to work the volatile markets will reap the benefits.
That said, the picture on the horizon boasts considerably more potential; in other words, the dawn of active fixed income in the exchange traded fund or ETF vehicle. Clinging to the assumption that ETFs are a passive vehicle – and passive vehicles only – is a myth, he continued.
Going….going…..gone.
Nope; no precious four baggers here. Instead, ESG recently took something of a hit as the United Nations convened a climate alliance for insurers, according to reuters.com. A minimum of three additional departures – including the chair of the group – took place. What had them heading for the exits? Opposition from U.S. Republicans pols.
As of the time of this report, on May 25, that meant at least seven members of the Net-Zero Insurance Alliance had bid the group adieu, with five of the eight founding signatories included. NZIA was founded in 2021.
Over the past year, in terms of reaching decisions evolving around investments, negativity stemming from the contemplation of EGS factors has dominated the landscape, according to weforum.org.
The invasion of Ukraine, inflation and, in some parts of the world, a spike in populism, have aroused criticism surrounding ESG.
The caveat: integral to abetting the swing to a greener, more sustainable future hinges on investing that’s truly sustainable and, consequently, shouldn’t be shucked aside.
Even so, the period of negative scrutiny in so much as arriving at investment decisions generated by ESG factors, has been unprecedented.
In an article for Benzinga, Piero Cingari discussed the bear market in office REIT stocks as the vast majority are now trading at their all-time lows. It’s not entirely surprising given that workers are not returning to the office, following the pandemic, despite the best efforts of many employers.
As a result, many companies are giving up office space and/or choosing to move to a hybrid model. Of course, this has spillover effects on other areas such as the businesses that sell products and services to these workers.
In the first week of May, office occupancy in the 10 largest US cities was at half the levels that were seen prior to the pandemic. Many analysts had predicted that office occupancy would gradually ‘normalize’ just like so many other parts of the economy have done so. Yet, this isn’t the case and occupancy hasn’t risen over the last 6 months which is an indication that the changes may be permanent.
Adding to the sectors’ woes is higher rates leading to higher borrowing costs, heavy levels of short interest, and rising crime rates in many urban areas.
Finsum: Office REITs have been crushed amid high rates and corporations reducing office space with occupancy at 50% of pre-pandemic levels.