Bonds: Total Market
JPMorgan Asset Management recently announced the upcoming launch of three new fixed-income BetaBuilders ETFs. The funds, which will launch in February, will provide exposure to the aggregate, investment-grade corporate, and high-yield corporate bond markets. All three will be converted from three existing actively managed ETFs. The JPMorgan BetaBuilders US Aggregate Bond ETF (BBAG) will be created from the $1.2 billion JPMorgan US Aggregate Bond ETF (JAGG). The fund, which will come with an expense ratio of 0.03%, will track the Bloomberg US Aggregate Bond Index and invest in Treasury, government-related, corporate, and securitized fixed-rate bonds from issuers worldwide. The JPMorgan BetaBuilders USD Investment Grade Corporate Bond ETF (BBCB) will be converted from the $40 million JPMorgan Corporate Bond Research Enhanced ETF (JIGB). BBCB will track the Bloomberg US Corporate Bond Index, consisting of investment-grade bonds from corporate issuers worldwide. The ETF has an expense ratio of 0.09%. The final ETF, the JPMorgan BetaBuilders USD High Yield Corporate Bond ETF (BBHY), will be created from the $400m JPMorgan High Yield Research Enhanced ETF (JPHY). BBHY will track the ICE BofA US High Yield Total Return Index, covering sub-investment-grade, corporate bonds issued in the US market. The fund has a slightly higher expense ratio of 0.15%
Finsum:JPMorgan adds to its suite of BetaBuilders ETFs with the upcoming launch of aggregate, investment-grade corporate, and high-yield corporate bond ETFs.
There is no doubt that government bond and corporate debt markets have taken a beating this year due to inflation and rising interest rates. But that may change next year if two fixed-income strategists are correct. On Tuesday, Gurpreet Gill, macro strategist, global fixed income at Goldman Sachs Asset Management said that “The year ahead is shaping up as the most promising for fixed income in over a decade.” While speaking at the Edelman Smithfield Investor Summit in London, Gill noted that valuations in fixed-income markets were looking more appealing than they were a year ago. This included emerging markets and corporate bonds. She stated, "We think it makes sense to be in high-quality short-duration assets, in agency mortgage-backed securities markets in the U.S." Gill isn’t alone in those thoughts. Sara Devereux, global head of Vanguard Fixed Income Group, said last Friday that “The recent debt rally brought the chance to reduce credit exposure and buy mortgage agency securities based on valuations, setting up what promises to be a bond picker’s paradise in the new year.”
Finsum:Two fixed-income strategists expect next year to be a great year for bond pickers due to lower valuations.
Invesco continues to expand its ETF lineup with the launch of four new actively managed ETFs. The new fund offerings include the Invesco AAA CLO Floating Rate Note ETF (ICLO), the Invesco High Yield Select ETF (HIYS), the Invesco Municipal Strategic Income ETF (IMSI), and the Invesco Short Duration Bond ETF (ISDB). All four funds were launched last Friday and trade on the CBOE. ICLO, which has an expense ratio of 0.26%, invests in floating-rate note securities issued by collateralized loan obligations (CLOs) that are rated AAA or equivalent. HIYS invests in higher quality below investment grade fixed income securities, such as corporate bonds and convertible securities. The fund charges 0.48%. IMSI has an expense ratio of 0.39% and invests in municipal securities exempt from federal income taxes and in other instruments that have similar economic characteristics. ISDB invests in fixed-income securities such as high-yield bonds and other similar instruments and aims to maintain a portfolio maturity and duration between one and three years. The ETF charges 0.35%.
Finsum:Invesco bolsters its active stable of ETFs with the launch of four fixed-income ETFs that invest in CLOs, high-yield bonds, munis, and short-duration bonds.
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Tidal Financial Group recently announced the launch of the Senior Secured Credit Opportunities ETF (SECD), its first actively managed credit ETF. The fund, which is managed by Gateway Credit Partners seeks to generate consistent income and preserve capital by investing in a combination of first-lien senior secured loans and secured bonds to businesses operating in North America. Gateway is a value-based credit manager that focuses on capturing fundamental and technical inefficiencies in the leveraged loan and high-yield bond market. The firm focuses on generating true alpha which they define as yield per turn of leverage significantly greater than their representative indices. It believes a “size arbitrage” exists in credit markets as rating agency models can over-emphasize size vs credit fundamentals. Tim Gramatovich founder of Gateway had this to say about the ETF launch, “At over $3 trillion, the US loan and high-yield bond markets offer investors a tremendous opportunity to generate yield. We believe SECD fills a much-needed gap in the actively managed corporate credit space particularly as it relates to the loan market.”
Finsum:Tidal Financial Group recently launched an actively managed credit ETF that aims to take advantage of higher yields in the loan market.
With bond mutual funds experiencing record losses this year, many investors are headed for the exit. But most are not leaving fixed income altogether, they’re just swapping mutual funds for ETFs. The main reason is taxes. Many investors are selling positions in bond funds and putting the cash into similar ETFs to harvest tax losses. According to The Wall Street Journal, “This year is shaping up to be the biggest 'wrapper swap' on record.” About $454 billion has been pulled from bond mutual funds, while $157 billion has flowed into bond ETFs through the end of October. According to macro research firm Strategas, it would be the largest net annual swap to ETFs by a wide margin.” Todd Sohn, ETF strategist at Strategas stated, “The Fed is at its most aggressive in 40 years. Along with inflation, that has absolutely crushed bonds. It’s set off the acceleration of wrapper swapping that we have seen in equities for a while. Now we’re finally getting it in bonds.” Many of these swappers are also taking their money out of mutual funds that hold riskier bonds and putting them into safer Treasury ETFs.
Finsum:With the bond market experiencing its worst year since 1975, bond investors are trading mutual funds for ETFs at a record pace.
According to the results of a recent survey, fixed-income investors want more ESG data than what is currently available. A survey of 111 senior buy-side fixed-income investors, which was conducted by analytics firm Coalition Greenwich, found that 90% believe ESG is important to decision-making, but only a third have fully integrated ESG into their risk analysis. The reason for the large difference is a lack of ESG data. Coalition Greenwich’s senior analyst Stephen Bruel stated “It boils down to risk management. If you don’t have reliable ESG data about an issuer or issuance, then it’s harder to calculate what the negative consequences might be.” More than half of the respondents said it was “important to incorporate ESG in fixed-income portfolios to perpetuate corporate values,” but there’s a “gap between where the survey participants want the industry to be and where it actually is.” Data was listed as the largest obstacle to achieving these ESG goals. The concerns about ESG data quality included greenwashing and inconsistent ratings. Essentially, if the data isn’t reliable, then quantifying risk becomes harder, which could open up investors to sizeable losses. This is especially true with the calculation of climate risk, which would certainly benefit from more data.
Finsum: Based on the results of a recent survey, fixed-income professionals believe ESG is important, but a lack of data is preventing more of them from implementing an ESG strategy.