Bonds: Total Market

The ETF sell-off is rampant as a response to the wild and sudden market volatility, but its time to get rid of your fixed income funds? Some experts are saying there is a breakdown in the traditional 60-40 portfolio, but outflows aren’t present yet at the rate in bond funds. This is despite funds like AGG being down over 10% YTD. One possible reason for this is that investors are more worried about macro factors than most other factors. Over a third of advisors are worried about inflation, rates, and geopolitics whereas only one in ten are as concerned with volatility. This is could cause a shifting of flows into more stable macro flavored products like bond funds.

Finsum: We’ve said it once we can say it again, bond fund holders aren’t eyeballing returns like equity ETFs they are holding for security. 

AllianceBernstein is moving forward with the development of two new ETF products and they are meeting the demands of the market. There has been a sharp uptick in active management particularly in the bond ETF segment in the post-pandemic environment. The predominant view is that managers are better suited at picking winners with macro-flare proving so effective. The two portfolios they are launching are coming in an ultra-short income offering which will have a combination of government and investment grade corporate debt. As well as a tax-aware short-duration ETF. There has also been a shift towards shorter duration bond funds as a response to a rise in interest rate risk.

Finsum: With the Fed stomping on the gas pedal, if inflation comes under control quickly longer duration debt could be under-priced.

State Street launched a new fund LQIG which started trading on May 12, an effort to give investors exposure to liquid bonds with high traceability. The market is rife with turmoil, and investors are looking to different fixed-income products to provide an inflation-beating yield and relatively liquid assets. The fund seeks exposure to 400 investment-grade corporate bonds denominated in dollars. These differ from most fixed-income funds which are designed to give broader market exposure that doesn’t prioritize traceability. The high traceability comes with lower bid-ask spreads as well as more transparency into their holding's real-time valuations.

Finsum: Investment-grade corporate debt is looking relatively more attractive with market volatility at such highs.

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