Displaying items by tag: fixed income

After a few quarters of turbulence, economic conditions are improving for fixed income according to an article by Principal Financial Group. Essentially, the Fed is succeeding in realizing its mandate as inflation and economic growth are moderating.

This means that the Fed’s hiking cycle is most likely in its final innings. Already, we are seeing longer-term rates bending lower in anticipation which is providing support to the asset class. Although there is the potential for more short-term volatility, the softening of economic and inflation data means that the longer-term trend is higher.

The first quarter of 2023 featured mild softness in inflation and the labor market, while economic growth came in better than expected. In the second quarter, economic data is likely to soften which increases the odds of the Fed pausing. 

Additionally, the Fed’s rapid tightening over the past year has not been felt in the economy. As these effects become more evident, fixed income will outperform and reward investors willing to sit through near-term volatility. 

Finsum: Fixed income performed well in the first quarter, but economic conditions continue to develop in favor of the asset class. 

Recent volatility in the financial market? Sure enough. Pressure on spreads? Two for two. 

Yet, the medium term outlook for fixed income hasn’t deviated and remains relatively high, according to sageadvisory.com.

Hearty returns in core fixed come are fueled by factors such as attractive yield carry, a weak growth picture and the wraps put on the Fed cycle

And is the subject of taxes ever far behind? 

Prompted by a change in tax laws, last month, investors flocked to park their dollars in fixed income funds, according to ithought.co.in. That said, merit played no role.

In 2023, investors should find out, for example, whether the time is right to put money in fixed income. That would be a yes, the site stated. Equity, gold, real estate or fixed income are the options investors have. For equity in so much as performance is concerned, 2023 will be rough and tumble. On the other hand, participation will score big. The best performing asset of FY22-23’s gold. For investors, rather than dwelling on what went down last year, all eyes should be on taking stock of performance down the line.

In an article for John Hancock Investment Management, Steve Deroin, the Head of Asset Allocation Models and ETF Strategy, discusses why he believes active fixed income will see a strong decade of growth as it’s uniquely positioned for the current market environment. 

Active ETFs are a small share of the total market, but they are rapidly growing. It provides the benefits of the ETF structure, while being more responsive to a volatile market environment. Currently, active ETFs have 5.3% market share but received 14.4% of net inflows in 2022. Additionally, they accounted for 63% of all new ETFs in 2022 which is the 3rd straight year that active offerings outpaced passive ones. 

In the fixed-income market, active ETFs offer exposure to bonds with more liquidity, transparency, and lower costs. Many passive fixed income ETFs don’t offer exposure to higher-yielding instruments and are instead concentrated in Treasuries and mortgage-backed securities. 

Thus, given these trends and a much more volatile market environment, the active fixed income ETF segment will continue to rapidly grow. 

Finsum: Active fixed-income ETFs are growing faster than passive fixed-income and active equity ETFs. Expect this trend to continue over the next decade.

In an article for ETFTrends, Mark Hackett discussed whether fixed income can rally given the backdrop of rising inflation and rates. These are potent headwinds for the asset class given that both factors reduce the value of future income and principal. 

Of course, this is a major change after a decade of zero percent rates and inflation under 2%. Under these macro conditions, fixed income consistently delivered strong returns for investors with minimal volatility. In addition to these headwinds, there is also an increase in geopolitical tensions, re-shoring of supply chains, a nascent banking crisis, and a slowing economy which could stumble into a recession.

Despite these challenges, investors should still retain a considerable allocation to the asset class. In fact, fixed income has performed well since the middle of 2022 especially as inflation is trending lower, while the market is pricing in rate cuts by the end of the year. Additionally, fixed income is offering yields that are above that of equities. 

Due to these developments, fixed income investors can earn above-average returns with minimal risk given the yields in short-term Treasuries and corporate debt.

Finsum: Fixed income ETFs struggled in 2022 due to rising rates and inflation. Despite some headwinds, there are some silver linings for the asset class.

Volatility? Um, okay. What of it?

After all, yeah, sure, while it generates risk, it also can create opportunity, according to lazardassetmanagement.com. Meaning, rather than trying to circumvent it, fixed income investors should embrace it. Why exactly, you ponder? It’s because they could reap rewards from, like a scene straight out of the Wild West, looking it in the eye. No blinking, either.

In this atypical environment, the firm believes investors might want to abandon a passive mindset and chew over investments that leave “plain vanilla” bonds in the dust. Investors can come across fixed income solutions that have the potential to set up portfolios for the longer run by being creative and active. And don’t forget, mind you, diversifying globally.

Earlier in the year, etftrends.com reported that, potentially, fixed income classes could dispense better total return performance in 2023. That’s in the aftermath of a year riddled in negative returns that not only reset valuations – but to levels that seem more attractive. It’s especially so among investors with a more prolonged timeline.