Fixed Income “Has a Huge Potential” to Outperform in 2023

While there’s still reason to be cautious, fixed income “has a huge potential” to deliver strong returns this year, according to BondBloxx Investment Management co-founder Joanna Gallegos.

“The fixed income asset class has a huge potential to deliver better performance in 2023,” Gallegos said on CNBC’s “Worldwide Exchange.” “We’re at new rate levels we haven’t seen in over a decade plus, and so, you’re really resetting valuations in a way that are very attractive.”

In particular, high yield corporate debt might be worth looking into, since not only do they offer higher yields, but BondBloxx projects that corporate defaults will remain lower than their long-term average.

“These companies are starting from a stronger place than they maybe would have in other recessions,” Gallegos said. “They have better balance sheets, they did a lot of refinancing of their debt throughout the pandemic when rates were low, and their fundamentals probably allow them… to weather this storm a little bit better.”

Gallegos explained that while “it’s been a fool’s errand not to pay attention to the Fed’s conviction about continuing its work until inflation gets down to 2%,” and that it’s not yet time to “sound the ‘all clear,’” it looks as though we’re “getting closer to the end of this rate cycle with the Fed.” As a result, investors have become more risk-on this month.

For investors wanting targeted high yield exposure, BondBloxx has seven industry sector-specific high yield bond ETFs.

Launched in October of 2021 to provide precision ETF exposure for fixed income investors, Gallegos co-founded BondBloxx with ETF industry leaders Leland Clemons, Tony Kelly, Mark Miller, Brian O’Donnell, and Elya Schwartzman. The team has collectively built and launched over 350 ETFs at firms including BlackRock, JPMorgan, State Street, Northern Trust, and HSBC.

In addition to the seven bond funds, BondBloxx has launched a total of 19 fixed income ETFs, including three ratings-specific high yield bond ETFs, eight target-duration U.S. Treasury ETFs, and one short-duration emerging market bond ETF.

“BondBloxx has continued to launch innovative products since its founding and has expanded the ETF universe with targeted products where there is white space,” said Todd Rosenbluth, head of research at VettaFi. “Their broad range of fixed income funds makes them a firm to watch as the asset category grows.”

For more news, information, and analysis, visit the Institutional Income Strategies Channel.