Markets
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.
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.
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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.”