Displaying items by tag: bonds

Thursday, 04 July 2024 13:52

Hidden Benefits of Active Fixed Income

When considering fixed income ETFs, active strategies offer notable advantages over passive ones. Unlike equity indexes, replicating a bond index like the U.S. Agg is "impossible" due to smaller bond quantities, infrequent trades, and varying maturities and credit ratings.

 

 Active management allows flexibility to adapt to shifting bond markets and interest rate environments. The T. Rowe Price QM U.S. Bond ETF (TAGG), for example, charges eight basis points and seeks to outperform the U.S. Agg through a diverse range of investment-grade U.S. bonds.

 

 As fixed income ETFs grow in popularity, active strategies present a valuable alternative. This trend reflects a broader move towards active management within the ETF space.


Finsum: When thinking about the advantages of active bonds its important to consider this index replicability that you can’t get in fixed income. 

Published in Wealth Management
Friday, 28 June 2024 03:21

Cost No Concern for This Active Bond ETF

In the current macroeconomic environment, fixed income investors have numerous options for attaining yield but getting active management is a different story, making the Eaton Vance Total Return Bond ETF (EVTR) particularly noteworthy. This ETF offers core exposure in an actively managed fund at a low cost, which is beneficial as interest rates are expected to stay high before eventually declining. 

 

Active management of the EVTR can provide the necessary flexibility to navigate the uncertainties of the bond market, especially with the volatility that has persisted into 2024. The fund's benchmark, the Bloomberg U.S. Aggregate Index, ensures a diversified mix of over 500 holdings, including safe haven Treasuries and higher-yielding bonds. 

 

Investors benefit from an attractive expense ratio of 0.39% and a 30-day SEC yield of 5.17%. The EVTR provides a comprehensive solution for core bond exposure or as a complement to existing bond portfolios, leveraging the expertise of Eaton Vance’s fixed income team.


Finsum: Typically, cost is the main concern with active management, but a cheap active exposure could be the goldilocks solution. 

Published in Bonds: Total Market
Wednesday, 26 June 2024 12:58

Two Income ETFs For Interest Rate Shifts

Since 2012, high-yield income stocks and ETFs have declined in value as rising interest rates have made bonds, Treasury bills, and CDs more attractive. However, buying high-yield ETFs now could be advantageous if interest rates decline in the future. Notable high-yield options include the JPMorgan Equity Premium Income ETF (NYSE: JEPI) and the JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ: JEPQ). Both ETFs use equity-linked notes (ELNs) tied to covered calls and have low expense ratios of 0.35%.

 

JEPI comprises 130 equities and routinely writes monthly calls on the S&P 500, yielding 7.5% annually. In contrast, JEPQ includes 98 equities and writes monthly calls on the Nasdaq-100, yielding 10.9% annually due to the Nasdaq 100’s higher volatility.

 

 Both ETFs offer steady monthly payments that are higher and less volatile than those from other dividend-focused ETFs, despite limited gains in strong markets due to their covered call strategies.


Finsum: As interest rates fall underlying bond prices could help boost the performance of these funds. 

Published in Wealth Management
Tuesday, 18 June 2024 06:16

Buffer ETFs are Getting Cheaper

PGIM, the investment management arm of Prudential Financial, launched two new laddered funds of buffer ETFs: the PGIM Laddered Fund of Buffer 12 ETF (BUFP) and the PGIM Laddered Fund of Buffer 20 ETF (PBFR) on the Cboe BZX. These ETFs offer U.S. large-cap equity exposure with limited downside protection and an upside cap on appreciation. 

 

BUFP invests equally in 12 PGIM U.S. Large-Cap Buffer 12 ETFs, while PBFR invests in 12 PGIM U.S. Large-Cap Buffer 20 ETFs. These funds, the lowest-cost buffer ETFs in the market with a 0.50% net expense ratio, aim to help investors navigate market volatility. 

 

Buffer ETFs provide the advantage of downside protection during market declines but come with the disadvantage of capped gains during market rallies.


 

Finsum: Lowering the costs of buffer ETFs could be wildly beneficial particularly when they seem so well poised for our current environment. 

Published in Bonds: Total Market
Wednesday, 12 June 2024 06:15

SMAs are the Vehicle To Capitalize on Rate Cycle

Locking in current rates can be beneficial before the Fed cuts interest rates. Holding bonds until maturity offers potential yield, though buying individual bonds can be complex so investors should prioritize vehicles like SMAs to achieve the goals with less complexity. 

 

Additionally, scalable solutions like individual bonds in SMAs or iBonds ETFs can be used to build bond ladders, providing steadier income. Amid high interest rates and an inverted yield curve, bonds may outperform cash, especially during a Fed pause. 

 

Advisors can enhance portfolios by adding longer maturity exposures. ETFs and SMAs help add income and stability to portfolios before the next rate cycle while simplifying the approach.


Finsum: There is something to locking in yields, but keep in mind bond prices will fall if the fed cuts rates but holding to term will be beneficial

Published in Wealth Management
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