Displaying items by tag: bonds

Goldman Sachs exceeded profit and revenue estimates with $8.62 earnings per share and $12.73 billion in revenue, driven by strong fixed income results and reduced loan loss provisions. The bank’s Q2 profit surged 150% to $3.04 billion compared to the previous year. 

Fixed income revenue rose 17% to $3.18 billion, while provisions for credit losses fell significantly. The asset and wealth management division saw a 27% revenue increase, and platform solutions revenue rose 2%.

However, investment banking fees were slightly below expectations, unlike rivals JPMorgan and Citigroup. Shares of Goldman Sachs increased by more than 1% in midday trading.

Finsum: This is evidence of the good climate for fixed income markets during extreme economic stress. 

Bond investors should closely monitor their allocation and management strategies, given the current favorable real Treasury bond yields above 2% and even higher yields on investment-grade bonds. 

Bonds are now competitive with other asset classes, a situation not seen in decades due to historically low central bank policy rates. Despite this, many investors continue to neglect their bond allocations, possibly due to poor returns over the past decade. Passive bond index funds and ETFs, like the Vanguard Total Bond Market II Index Fund and iShares Core U.S. 

Aggregate Bond ETF, have gained popularity but may not align with all investors' objectives. Active bond management, which can better match investment goals and risk tolerance, often outperforms passive strategies even after fees. Investors should consider a more active approach to bond investing to optimize their portfolio performance and risk management.

Finsum: A rate cut seems more likely given the economic outlook and investors should plan accordingly

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. 

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. 

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.