That's correct, Joe Biden’s latest economic rebrand is really a diet version Ronald Reagan era policy. In a recent statement, Joe Biden said that in response to inflation we can either “increase the supply of cars” or “reduce demand for cars by making Americans poorer”. This is essential supply-side economics made famous by the Reagan administration. Additionally, Yellen coined the term ‘modern supply-side’ economics just two weeks later in order to push the Build Back Better bill. This is a liberal tilt on aiding the weakening supply chains that will hopefully strengthen the economic recovery. It's a response to republicans’ attacks that BBB will surge debt and inflation.


FINSUM: The economy is in a difficult place, there is still catch up needed but undoubtedly Americans are feeling the force of inflation and another stimulus package could only further that problem.

More so than inflation, interest rate risk is the biggest factor in bond markets. If the Fed hikes and Yields rise then that will only lower the value of many bond ETFs. In response, many investors have turned to shorter-duration fixed income. However, the latest surge is off the charts. Lots of money is flowing into ultra-short cash like ETFs with the lowest duration treasuries. Investors are offloading even medium-duration treasuries in the five-three year window. PIMCO’s MINT saw almost $900 million in inflows setting a record week for the fund. Investors are just looking to store capital in the midst of all the interest rate risk in the economy right now.


FINSUM: It's unclear if one rate hike or two will send yields surging high enough, now might be the time to hold medium duration debt as a lot of the risk could be priced in.

The fixed income ETF market took a hit in 2020, and it's been a very slow recovery. Still, active funds outperformed during this time period, and that trend could continue into 2022. A stand-out active bond ETF to consider is Fidelity Total Bond ETF. it’s seen stellar performance when compared to its peers and its managers are committed to ensuring liquidity. Another ETF to watch out for is Pimco enhanced Short Maturity Active ETF. This fund is more centered around stability and security with less risky management. However, avoiding high yield corporate debt and currency risk these factors can make it a safer alternative in the upcoming cycles.


FINSUM: Shorter duration active bond ETFs are really important to consider right now because they mitigate the single biggest risk that exists in bond markets: rising rates.

Macro factors are flummoxing the bond market and a combination of rising inflation and higher interest rate forecasts are crushing bottom lines. However, now is a great time to consider the future tax bill. Rarely can investors see the future, but the Fed is being about as explicit as possible about hiking rates multiple times this year. This means as yields creep up, bond prices will fall in various segments of the bond market. This is an opportune time to consider cutting ties with bonds and realizing the losses you have because it will be over a month before investors will want to jump back in and they can harvest the losses for the end of the year. FINSUM: Most investors have been looking to active funds and shorter duration to minimize inflation risk, but tax-loss harvesting is a nice way to take advantage of rising yields.

Direct and custom indexing are all the rage right now and many companies are racing to provide lower fees and smaller minimums. The most advantageous part of direct indexing is its goldilocks solution when it comes to fees, but particularly the active/passive debate mashup. The most talked-about advantage to custom indexing is tax-loss harvesting in the portfolio, but there could be a larger advantage: sectoral macro factors. The Fed is quickly planning on hiking rates which will adversely affect technology stocks, with a custom index you can add/drop targeted sectors that are facing financial headwinds due to policy changes.


FINSUM: This is a nice way to leverage the tailored portfolio that you can get from custom indexing.

New survey data is out regarding how investors are utilizing fixed income ETFs and how they are represented in a portfolio. In 2021 Fixed income represented about 18% of global ETF assets under management, and many investors plan on increasing their use going forward. The number one purpose for fixed income ETFs was for liquidity management as 83% of surveyors use them in this way. However, transition management, derivative complementarity, and tactical adjustments were also highly cited reasons for their use. Many draw on fixed income ETFs for liquidity purposes, and this is particularly evident in the bid-ask spreads. Relative to their underlying securities ETF spreads for HYG were 48x smiler than the underlying assets.


FINSUM: It's clear investors aren’t terribly worried about lower yields and rising interest rates, these ETFs are giving freedom and flexibility in investors’ portfolios.

Many investors and lots of market data suggested that interest rate hikes to the federal funds rate were coming at this last FOMC meeting. However, the Fed made a minor splash by withholding on hiking interest rates, but almost guaranteeing them in march. Higher borrowing costs will come in large part due to rising inflation and running a very tight labor market. Powell said this latest economic expansion varied drastically from the previous with significant growth and higher inflation. Powell also signaled that the Fed will soon begin to unwind the balance sheet as they raise rates. Treasury yields were already on the rise after the Feds statement and stocks ended in losses on the news too.


FINSUM: When the rate hikes come they most likely only happen on the Feds March, June, September, and December meetings because the Fed views its large ‘Summary of Economic Projections as critical to their forward guidance policy.

Inflation is picking up as PCE and CPI numbers are setting decade-long records, and the Fed is rapidly trying to regain control. The American people are beginning to show signs of angst as 65% of American’s say that Biden’s admin has not put enough attention on handling inflation and almost 60% say the same thing about the economy. This comes a swathe of low approval rating numbers come in where he has fallen almost 20 percentage points all the way down to the low 40’s. Overall about half of Americans say they feel frustrated and disappointed in the Biden admin. Biden’s focus has been on a series of regulatory and economic-centered packages, and many American’s don’t feel he is focusing on the issues they ‘don’t care about’.


FINSUM: Biden should stop pushing for another big fiscal package immediately if he has any hopes of reigning in inflation in 2022.

The bond market blues have been difficult as rising rates have started to really deflate a lot of funds. However, active bond funds have had an edge because not been pegged to indices they have freely navigated to localized emerging market debt. From HSBC to BNP many of the largest funds are buying up localized EM debt because many of these countries’ central banks tightened monetary policy last year and the rate hikes are already built-in. So as bond prices go down in the U.S. and inflation risk remains high, hawkish central banks in Russia, South Africa, Indonesia, China, and South Korea have all soured because localized currency means higher real payout and with relatively lofty interest rates the funds have a more promising horizon.


FINSUM: 12-Months ago the U.S. was looking at Emerging Markets as crazy for tightening the belt too quickly, but now these emerging markets are ahead of inflation and their bonds are soaring.

hroughout 2021 one of the biggest worries for investors, business owners, and policy makers has been the return of inflation. Long dormant, inflation has surged as markets and economies recover from the COVID-19 pandemic ... [Read More]

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