Displaying items by tag: ETFs

According to Bloomberg data, the iShares iBoxx $Investment Grade Corporate Bond ETF (LQD) saw $3 billion in outflows on Monday, its largest one-day outflow since the fund’s inception twenty years ago. The exodus was quite the reversal for LCD as the ETF saw six straight weeks of inflows. The fund was up 9% between October 20th and Friday, with investors pouring money back into credit with the hope that the Fed might slow down the pace of rate hikes. However, those hopes fell as St Louis Fed President James Bullard warned that “markets are underpricing the risk that the central bank will have to be more aggressive rather than less aggressive.” In response, LQD dropped 0.7% on Monday, its worst performance in over a month. As of Monday’s close, the ETF was down 19% for the year, its biggest loss ever. Peter Chatwell, head of global macro strategies trading at Mizuho International told Business Insider that “The fund’s recent rebound likely exacerbated the withdrawals as year-end approaches. Clearly, at this time of year, some money gets taken out of the market, particularly if performance has recently been strong, which with LQD it has.”

Finsum:LQD saw its largest one-day outflow ever as St Louis Fed President James Bullard warned that the Fed will need to become more aggressive, not less aggressive.

Holly Framsted, ETF director at Capital Group, home of the American Funds, thinks that advisors and tax professionals shouldn’t overlook the role that actively managed fixed-income ETFs can play in tax loss harvesting. Tax loss harvesting is a strategy that involves selling investment securities at a loss to reduce federal capital gains taxes. Framstead notes that typically, investors will turn to the equity markets for tax loss harvesting, but with the bond markets also experiencing losses this year, fixed income should be considered part of the strategy. In an article for Bloomberg Tax, she wrote, “To realize capital losses through tax loss harvesting, investors must not purchase the same or a substantially identical fund or security for 30 days after the sale. During this time, cash raised from the sale of securities can be reinvested in strategies that are different from those that generated the loss.” She believes that the differentiation that active ETF strategies provide relative to other funds “may make them a compelling investment during the wash sale period as a way for investors to maintain exposure to a changing market while still booking losses.”

Finsum:Capital Group’s ETF director recommends incorporating active fixed-income ETFs into a tax loss harvesting strategy to take advantage of the differentiation that they provide.

Category: Bonds: Total Market

Keywords: active etfs, ETFs, fixed income, tax loss harvesting

According to research from JPMorgan, the shift from actively managed funds to passive index-tracking funds has accelerated this year. The move has been boosted by a jump in flows to bond and mixed-asset funds. The share of assets under management held in U.S. passive bond and hybrid funds rose from 23% of all equivalent U.S. fund assets at the end of 2019 to 28.5 % by August 2022. Peter Sleep, senior portfolio manager at 7 Investment Management told Financial Times that “Bond exchange-traded funds were now catching up with their more broadly adopted equity ETF counterparts as the offering had broadened and become more cost competitive.” Jane Sloan, head of iShares and index investing Emea at BlackRock, added that “Half of all inflows into global ETFs this year had been into bond ETFs.” She also noted that “More people are using ETFs to trade bonds as they move within fixed-income asset classes.” This explains why trading volumes in bond ETFs are up 35% since 2020 and 2021. Tax loss harvesting is another reason for the shift as it provides an incentive for investors to sell out of their actively managed fixed-income funds.

Finsum:Due to a combination of tax loss harvesting, ETFs becoming more cost competitive, and an increase in bond ETF trading, the shift from active to passive bond funds is accelerating.

According to fund managers, investors are pouring money back into U.S. corporate credit due to a combination of higher yields and attractive valuations. Salim Ramji, global head of exchange-traded funds and index investments at BlackRock told the Reuters Global Markets Forum, "We are at the beginning of a rotation as investors come back into credit. With the rapid move in front-end rates, the curve has repriced credit to attractive levels." This has benefited fixed-income ETFs such as the iShares iBoxx Investment Grade Corporate Bond ETF (LQD) and the iShares High Yield Corporate Bond ETF (HYG), which are on track for quarterly gains in the fourth quarter after falling 20% and 14% respectively this year. Jim Leaviss, chief investment officer for public fixed income at M&G Investments added "We don't know exactly when the peak in inflation will be, but I think that's not a million miles away. If we're at this turning point then the entry-level you get by buying investment-grade credit in the (United) States looks really attractive." Ramji also said that “The jump in bond yields has also made corporate credit more attractive to investors looking for income after years of low-interest rates.”

Finsum:A combination of attractive valuations and higher yields has made U.S. corporate credit ETFs more enticing for investors. 

Fintech firm WBI and ETF provider Pacer recently announced a strategic partnership to transform how financial advisors interact with clients to personalize and implement model portfolios. WBI offers investment technology that optimizes multi-manager portfolios that target loss or return. The platform’s interactive toolkit takes inputs from the client and assistance from an advisor and establishes client benchmarks for loss and return. The imbedded invest-tech then optimizes a portfolio to meet the client’s targets. Advisors can instantly customize the portfolio to position the client for success. Pacer is a well-known ETF firm that focuses on strategy-driven, rules-based ETFs. The two firms will work together to promote the targeted loss portfolios of WBI’s technology platform. WBI and Pacer will also look for other opportunities to partner on model construction. Matt Schreiber, Co-CEO at WBI had this to say about the partnership, "WBI is excited to work with Pacer. Their rules-based ETF offerings seek to produce strong risk-adjusted returns which are favored by the platform’s optimization engine. This partnership allows both parties to build on the momentum around our innovative products and shared mission to help improve investor outcomes."

Finsum:Fintech firm WBI and ETF provider Pacer are joining forces to promote WBI’s targeted loss portfolios that advisers can construct for clients.