Bond. James B….. Well, no, not exactly. However, for the first time in 10 years, investors are gaining value in bonds, according to JPMorgan Chase & Co.’s Bob Michele, as quoted on Bloomberg, reported zacks.com. That’s unfolding in the light of higher interest rates making fixed income more of a financial boon.
“Every wealth-management platform in JPMorgan, every institutional client -- they’re coming to us, they’re putting money in bonds,” Michele told host David Westin. “Bonds are back.” iShares 1-3 Year Treasury Bond ETF (SHY Quick QuoteSHY – Free is off 5.2% this year while the S&P 500 has lost about 17.2%.
Someone say double duty? They address steepling interest rates as well as yielding healthy current income. In the midst of a tumultuous year, this ETF’s proven relatively resilient.
For those who feast on bonds, a handful of potentially winning ETF strategies are highlighted below:
- High-yield interest-hedged ETFs
- ProShares High Yield-Interest Rate Hedged ETF
- Convertible Bond ETFs
- First Trust SSI Strategic Convertible Securities ETF
- Senior Loan ETFs
- TIPS ETFs
- Floating Rate Bond ETFs
- Short-Term Cash-Like ETFs
Meantime, for the period concluding November 30, 2022, the distribution amounts per security (the "Distributions") for certain of its exchange traded funds, recently was announced by Horizons ETFs Management (Canada) Inc., according to finance.yahoo.com.
Much has been written about the failure of the 60/40 portfolio this year. What was once the classic allocation has seen its share of losses in 2022. Fueled by drawdowns in both the equity and fixed-income markets, advisors and investors are now thinking twice about the following a 60% allocation in stocks and a 40% allocation in bonds. However, there could be a fix. According to fixed income specialist David Norris, the 60/40 portfolio split should be flipped and focused on short-term bonds. Norris, head of U.S. Credit at TwentyFour Asset Management, told Financial Advisor Magazine that “the bond side of that reversal should be anchored in short-duration bonds.” Norris said that “the rate cycle we are in now, with a lot of volatility and inflation, has created a fixed income market with rates we have not seen for a decade. Yields for short-duration bonds are very attractive now.” Norris is not wrong; U.S. short-term government bonds are paying more than 4.5% right now. A focus on short-term bonds should help investors better navigate the current volatility in the market.
Finsum:A bond strategist at TwentyFour Asset Management believes that the 60/40 portfolio should be flipped and focused on short-term bonds.
T. Rowe Price added to its active ETF lineup with the launch of the T. Rowe Price Floating Rate ETF (TFLR). This follows the firm’s launch of the T. Rowe Price High Yield ETF last month. TFLR invests primarily in floating-rate loans and other floating-rate debt securities. The manager, Paul Massaro, will focus on investing in BB and B-rated loans, which he believes are likely to keep volatility at below-market rates over time. He will take a disciplined approach to credit selection, featuring rigorous proprietary research and strict risk control, similar to the mutual fund version of the fund. Massaro had this to say about the launch, "Floating rate bank loans hold a unique position across the broad fixed income landscape given their combination of a floating rate coupon and elevated placement in a company's capital structure – an important risk management attribute. Historically, bank loans have provided a partial hedge against rising rates as well as low return correlations with other asset classes, making them a solid portfolio diversifier.” TFLR trades on the NYSE Arca and has an expense ratio of 0.61%.
Finsum:T. Rowe Price brings its active ETF stable to ten with the recent launch of the T. Rowe Price Floating Rate ETF.
After listing three new equity sustainability ETFs earlier this month, Dimensional Fund Advisors launched a new bond sustainability fund, the Dimensional Global Sustainability Fixed Income ETF (DFSB). The fund, which trades on the NYSE Arca, invests in a broad portfolio of investment-grade debt securities of U.S. and non-U.S. corporate and government issuers, including mortgage-backed securities. DFSB will also take into account the impact that companies may have on environmental and sustainability considerations to lower carbon footprint exposure. More specifically, the fund will exclude companies that the manager considers to have high greenhouse gas emissions intensity or fossil fuel reserves relative to other issuers. DFSB has an expense ratio of 0.24% and is benchmarked against the Bloomberg Global Aggregate Bond Index. The new fund brings DFA’s ETF lineup to 28 with over $64 billion in assets.
Finsum:DFA adds to its ETF lineup with a bond sustainability fund that aims to lower carbon footprint exposure.
Try active fixed management, which has an eye on managing the different risk characteristics of the fixed income market, according to madisoninvestments.com.
When these risks bubble to the top, the price tag on a bond might go kerplunk, potentially jeopardizing interest payments down the line. The upshot: your portfolio could take a hit. Yeah; ouch. Meantime, common as they are, passive buy and hold strategies – or ETFs – have a history of missing the mark on addressing risks linked with fixed income.
On the radar of active fixed management is managing the various risk characteristics of the fixed income market. A portfolio can act in light of market conditions with active decision making within a portfolio.
Okay, so if you’re searching high and low for white knuckle thrills, fixed income investing might not be the Uber pickup you’re looking for.
But…Isn’t there always one? The market volatility sparked by the aftermath of the COVID pandemic, bond specialists might want to hold on tight, according to benefitscanada.com.
“There’s more yield in the marketplace, so bonds are becoming a better competitor to stocks. . . . You should be asking yourself, how do I get more to my portfolio’s core allocation?” said Jeffrey Moore, portfolio manager in the fixed income division at Fidelity Investments, during the Canadian Investment Review‘s 2022 Risk Management Conference, the site continued. “I think there’s a whole bunch of ways.”
While politics have made ESG a controversial topic recently, there’s no denying the fact that its popularity is still soaring. That was made abundantly clear with the release of the Index Industry Association’s (IIA) sixth annual global benchmark survey, showing a surge in ESG benchmarks worldwide. According to the survey, the total number of indexes climbed internationally by 4.43% over the prior year, with ESG indexes worldwide increasing by 55%. However, the bigger news was that fixed-income ESG indexes surpassed equity ESG indexes for the first time. In fact, fixed-income ESG indexes increased by an unprecedented 95.8%. This breaks the previous record of 61.09% last year. While equity ESG index growth was slower, it still grew at a high rate of 24.15 percent. Muni indexes had the strongest year for non-ESG fixed income, rising 10.86%. Rick Redding, IIA’s CEO, said the following concerning the survey: “The index industry continues to meet the needs of the marketplace by creating innovative solutions. Highlighted again this year by record growth in ESG, index providers are empowering investors with the ability to define, track and better understand an ever-broadening range of financial markets, sectors, investment styles, and asset classes.”
Finsum:A recent index survey revealed that fixed-income ESG indexes have surpassed equity ESG indexes for the first time.
While income investors are certainly enjoying higher yields this year, the past decade had not been as kind. The low to flat interest rates over the past ten years may have helped propel the economy and markets since the financial crisis, but they also made it quite difficult for investors to find income. So, Wall Street firms got creative and created complex investment products that offered higher yields. But with rates rising this year, those same products are putting firms at risk, which is why they're jostling to hedge those positions by investing in derivatives that benefit from higher volatility in the market. However, those derivatives are making volatility in the US government bond market even worse. Treasuries were already experiencing massive swings as investors bought derivatives to lessen their bond risk, while dealers made long-volatility bets to hedge their own exposure. This combination led to a huge jump in the MOVE Index, which measures the implied volatility of Treasuries via options pricing. In October, the index breached 160, which is near the highest level since the financial crisis. With additional money betting on the ups and downs of bond yields, this is only going to add more fuel to the fire.
Finsum:As firms increase in their purchases of volatility-linked derivatives to hedge risk, the treasury market is expected to become even more volatile.
Investors were offloading ultra-short-term bond ETFs in a hurry ahead of the Fed’s most recent rate hike. The Federal Reserve’s announced its fourth-straight 75 basis-point interest-rate hike on Wednesday. Ultra-short-term bond ETFs, which are considered cash-like, saw some of the largest inflows this year as the Fed raised rates. However, it appears that investors have now had a change of heart. The iShares Short Treasury Bond ETF (SHV), which tracks U.S. Treasury bonds with maturities of one year or less, saw $2.5 billion in outflows on Tuesday in the fund’s largest one-day outflow on record, according to Bloomberg data. SHV wasn’t alone as a host of other ultra-short-duration funds also saw massive withdrawals earlier in the week. The record outflows suggest that traders believe rising Treasury yields may have topped out and they no longer need the safety that short-term bond ETFs provide. They are either open to more risk with longer duration bonds or are preparing for a potential recession.
Finsum:Ultra short-term bond ETFs are seeing massive outflows as traders extend into longer-duration bonds ahead of a potential recession.
Following its February launch of five equity ETFs and one fixed-income ETF, Capital Group recently launched three active fixed-income ETFs on the New York Stock Exchange. The three new funds include the Capital Group Short Duration Income ETF (CGSD), the Capital Group Municipal Income ETF (CGMU), and the Capital Group U.S. Multi-Sector Income ETF (CGMS). CGSD is a short-duration income fund that pursues high-quality income with low-interest rate sensitivity. CGMU is a core municipal fund that pursues tax-exempt income consistent with capital preservation while seeking total return, and CGMS is a diversified U.S. multi-sector income fund that pursues a high level of current income and the opportunity for capital appreciation. Mike Gitlin, head of fixed income for Capital Group said the following about the three funds, “We’ve deliberately built our three new active ETFs in categories that have historically been underserved by active ETF managers including multisector bond, municipal national intermediate bond and short-term bond. We believe these will help investors manage short-term cash needs, generate tax-exempt income, and benefit from some of the best starting yields we’ve seen in credit in years.”
Finsum:To meet underserved areas of the fixed-income market, Capital Group launched three actively-managed bond ETFs.
Stocks and bonds during the first half of the year?
Kerplunk. Scientifically speaking, of course.
That’s where balancing could come in handy, according to morningstar.com. Investors who abided by strategy dictated by discipline wouldn’t have taken as big a hit, according to morningstar.com.
Of course, rebalancing doesn’t come with any guarantees when it comes to generating an improvements on returns, results this year show why maintaining a tight rein on risk isn’t such a bad idea.
As an investor, whether you’ve been around the block a few times or are wet behind the ears, your priorities probably vary widely, according to smartasset.com.
Thinking about building a portfolio from scratch? Well, you might want to try this instead: you’ll be assigned a pre built model portfolio by many advisors.
Also consider that most investment advisors keep close tabs on and review their model portfolios to make sure they’re achieving their benchmarks and doing their thing at level that are proper. But that doesn’t happen at the snap of a snap of the fingers; instead the process entails rebalancing each portfolio, which your ability to maintain the asset allocation that was designated.
Fretting over salting away enough cash for retirement against the backdrop of the helter skelter ride, courtesy of the stock market?
Yeah, it’s a thing.
In the dawning days of September, the S&P 500 index of stocks saw almost 24% fly out the window, according to Sandy Wiggins, of ACG Wealth Management in Midlothian, appearing on wtvr.com. Bonds, what’s more, typically, regarded as a safer option than stocks, also hit the skids. Through that month, Bloomberg US Aggregate – the main bond index – kissed away 14.6%.
“It’s a scary time for investors, especially those who have retired or are planning to in the next few years,” Wiggins said, reported wtlocal.com. “However, the key to successful long-term investing is to keep fear from making decisions in such difficult times. Investor psychology is such that greed in good times and fear in bad lead to overreaction and bad decisions.
“First, realize that timing the market is a losing strategy,” Wiggins continued. “By timing the market, we mean moving from stocks to cash or something else conservative with the expectation of going back when things feel better. The best demonstration of the folly of market timing is to examine the impact on returns by staying invested and missing the best return days.”
Historical lows. This year, they’ve besieged the Bloomberg Global Aggerate and Bloomberg U.S. Treasury indexes, according to etftrends.com.
As they put high risk assets in the market, investors are second guessing the role of fixed income in their portfolios. That’s where active managed funds can provide a boost.
Fixed income might not exactly be in the driver’s seat now, but when it comes to the bond market, investors can’t simply look the other way. Why not? Well, it’s not just the world’s largest securities market – and by a considerable margin – it’s also rode the wave of significant growth. And that’s both in terms of size and the number of issuers.
“Navigating the bond market is even more challenging for advisors this year as bonds fall in value,” said Todd Rosenbluth, head of Research at VettaFi. “However, the ability to tap into the expertise of experienced managers along with the liquidity benefits of an ETF has been compelling.”
Meantime, face it: many investors aren’t accustomed to the volatility and price drops prompted by dramatically growing interest rates this year, according to advisorscapital.com.
The upside? Yields on fixed income securities have really made out better than they have in years.
American Century Investments recently launched its newest active ETF, the American Century Short Duration Strategic Income ETF (SDSI). The fund, which now trades on the NASDAQ, will seek to generate attractive yield by investing across multiple fixed-income market segments that maintain a short-duration focus. The fund invests in both investment-grade and high-yield, non-money market debt securities. This could include corporate bonds and notes, government securities, and securities backed by mortgages or other assets. SDSI is a transparent active ETF with an expense ratio of 0.32%. The fund management team includes Jason Greenblath, Charles Tan, Jeffrey Houston, CFA, and Peter Van Gelderen. Ed Rosenberg, American Century's head of ETFs, noted that "SDSI expands our existing Short Duration Strategic Income capabilities to an actively managed ETF. The Short Duration Strategic Income ETF seeks to complement an investor's core bond holdings with high current income, broad diversification, and the potential to mitigate the impact of rising rates."
Finsum: American Century continues to build up its active ETF lineup with the addition of the American Century Short Duration Strategic Income ETF.
With yields rising as the Fed pursues its hawkish monetary policy, investors are piling billions into ETFs that track both the short- and long-term treasury market. For example, $13 billion has been added to the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) this year, a product that now offers some of the most attractive yields in over a decade, while having very little interest-rate risk. On the other end of the yield curve, investors have flooded a similar amount into the iShares 20+ Year Treasury Bond ETF (TLT), which has experienced historic losses due to the Fed’s rate hikes. TLT has seen more new inflows than any other fixed-income ETF this year. However, the reasons for these inflows likely differ between the two. Investors seeking yield can now find that in a short-term treasury ETF like BIL, while investors that believe the Fed will slow down rate hikes, or even cut rates in the future, will benefit from the high duration that a long-term bond ETF such as TLT could provide. The steep losses in the market this year have also driven defensive investors into cash-like instruments such as BIL.
Finsum:Investors looking for yield and safety are piling into short treasury ETFs, while investors seeking high duration are flooding into long-term bond ETFs.