Bonds: High Yield
Perhaps you’ve heard: inflation seems to have an insatiable appetite and the short term outlook in fixed income are being dominated by interest rates spikes by the central bank, according to ssga.com.
Ah, but there is a life preserver: longer term, structural factors are having more than a little sway in how investors implement and oversee fixed income allocations.
'Did someone say life preserver’, grumbled the Skip from Gilligan’s Island?
‘Fraid so, dude.
And you want to know the punch that ETFs are packing in in the evolving landscape of fixed income? Well, consider ssga’s new global study, which surveyed 700 institutional investors and investment decision makers.
One key finding: there was a growth from assets under management from $574 billion in 2017 to $1.28 trillion in 2021, according to data recorded by the New York Stock Exchange. What’s more, the number of funds also accelerated like no one’s business over the same period – from 278 to almost 500.
As for non core sectors? The role of ETFs in asset allocation is propelling, according to its survey this year.
According to the report, 62% of investors who are ratcheting up their exposure to high yield corporate credit over the next 12 months indicated the chances are high they’ll leverage ETFs to do it. Ditto for 53% in terms of emerging market debt, according to pionline.com.
"Our 2022 survey shows that the role of ETFs in asset allocation is expanding to non-core sectors," said the report, "The Role of ETFs in a New Fixed Income Landscape."
VanEck recently announced the launch of an actively managed multi-asset income-focused ETF that offers diversified exposure to the highest-yielding segments of the equity income and fixed income markets. The VanEck Dynamic High Income ETF (INC), which trades on the NYSE, seeks to identify compelling sources of high income and dividends and builds a corresponding portfolio primarily of ETFs. INC's fixed income component is made up of exposure to "fallen angel" high-yield bonds, international and emerging market high-yield bonds, emerging market local currency bonds, and 10–20-year U.S. Treasuries. Its equity component will include exposure to dividend-paying stocks, business development companies, preferred securities, mortgage REITs, and MLPs. The fund’s management team, which is led by David Schassler, seeks to maximize yield per unit of risk by assessing volatility and correlation data to optimize and refine specific exposures. The ETF is also designed to adapt quickly to changing market conditions and take advantage of price anomalies in the market.
Finsum:VanEck adds to its asset allocation-focused ETF lineup with the launch of a multi-asset income fund that offers exposure to the highest-yielding segments of the market.
T. Rowe Price recently announced the launch of the U.S. High Yield ETF (THYF), an actively managed bond fund that began trading on the NYSE Arca. This is the fourth actively managed fixed-income ETF for the fund firm. The ETF follows the same process as its mutual fund counterpart, the T. Rowe Price U.S. High Yield Fund (TUHYX). The strategy is designed to provide a concentrated, yet balanced, portfolio primarily focused on U.S. high-yield bonds or bonds that are considered below investment grade. Both the ETF and mutual fund are managed by Kevin Loome, CFA, who has been at the firm for 16 years. Loome utilizes a disciplined, fundamental, bottom-up credit selection process, combined with forward-looking research to identify a concentration of high-conviction total return opportunities. While the fund mainly consists of high-yield corporate bonds, it may also include other income-producing instruments such as bank loans, convertible securities, and preferred stocks.
Finsum:T. Rowe Price added to its active fixed-income ETF lineup with the launch of the T. Rowe Price U.S. High Yield ETF (THYF).
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A niche? Hey, almost everyone has one. So why not fixed income ETFs – non-core fixed income, especially, which “play an expanded role in portfolio construction” for institutional investors, according to the results of a survey conducted by State Street Global Advisors, reported etfdb.com.
According to the report, The Role of ETFs in a New Fixed Income Landscape, of the 700 global institutional investors SSGA surveyed with an eye on upping their exposure to high-yield corporate debt over the next 12 months, 62% likely will do so through ETFs. In contrast, only 27% of investors significantly tapped into ETFs to build their allocations to non core fixed income like high yield last year.
“The increase from just over a year ago is remarkable,” the report said.
Among larger institutions, well, the momentum especially reverberates, according to etftrends.com. Sixty eight percent of respondents generating more than $10 billion in assets indicated they’re likely to leverage ETFs to erect new exposures to high yield corporate credit.
“Our conversations with investors have reinforced what we already knew – there is significant demand for more targeted fixed income products,” said Tony Kelly, an ETF industry leader. “Our initial product suites aim to create a full toolkit for high-yield investors looking to implement their specific views on the market, and we anticipate extending this approach to other fixed income asset classes.”
Interest in directing indexing’s, well, titan
Direct indexing has drawn the attention of the titans of the asset management industry – and the reasons are obvious, according to wealthytrails.com.
Do tell.
Will do. There’s been a steady erosion of the fee management of mutual funds and exchange traded funds stemming from the escalation of ETFs themselves. Room is scant for addition products with more than 2,000 US ETFs and 5,000 US equity mutual funds, based exclusively on a universe of just 3,000 stocks. There’s a search for new revenue generating business areas by the industry. What’s more, interest by clients in customized portfolios, which is burgeoning, is on the radar.
Asset managers, shucking aside a commingled vehicle, execute direct indexing on the behalf of clients by assuming positions reflecting a representative samples of underlying index constituents, according to impactinvresting.com.
What does this approach yield? Customization, which abets flexibility. That includes pinpointing the index to track and exposures to circumvent -- or avoid – and potential tax advantages. That way. You can opt for the actual ingredients and directly call the underlying equities your own. Consequently, you don’t have to make purchases elsewhere.
Not a fan of leaping off a tall building in a single, crisp bound? Without a parachute? Odd but, well, okay.
Nevertheless, if that’s your mentality, you might tip your glass to active fixed income management. Afterall, one of the primary things it delivers is mitigating risk, according to npifund.ngontinh24.com.
For example, it yields investments beyond the fixed income benchmark index and facilitates the ability of managers to either push or tamp down risk. A passive strategy? Um, nada.
And active fixed income managers who have their antenna up can abandon possible issues before the wreak havoc on client portfolios, the site continued.
And that’s not all, no siree. They also rachet down interest rate sensitivity and keep their hands firmly on the wheel when it comes keeping the length of risk under their thumb, according to catalyst-insights.com. What’s more, they’re adept at uncovering yield against a low yield backdrop and get the most out of the trade off between duration exposure and yield capture.
And you might say they’re rather nimble, with an ability to seize on opportunities stemming from dynamic economic and policy shifts. A prime example, if you’re really keen on being reminded: the recent steepening of the bears. Gee, thanks, ladies and gentlemen, right?