The current market value of Senior Loan ETFs is $19.8 billion across 7 funds, which is small compared to the $1.5 trillion invested in the overall market for these bonds.
In reviewing the history of the category, the next question investors need to ask is about the makeup of the portfolio as determined by active vs passive decision-making process.
While it may not provide the yield of riskier debt, it’s ideal in the current market environment where uncertainty reigns.
Bonds can offer investors a safe haven against stock market volatility, while short-term bonds limit the risks of potential rate rises that can rob investors of fixed income opportunities.
That’s relevant for EMLC investors because the $3.4 billion fund follows the J.P. Morgan GBI-EM Global Core Index, and as of January 31, it had a 4.48% allocation to Russian bonds, according to issuer data.
Another benefit of Russia eventually being ejected from EMLC’s roster is that the ruble is in free fall and the fund holds bonds denominated in local currencies.
The active China green bond ETF strategy will track debt securities issued by Chinese corporations that finance environmentally beneficial projects, such as building eco-efficient products or products to prevent and/or control pollution output; investing in wind, solar, or hydrogen-powered energy; or any project targeted to addressing environmentally driven climate change issues.
Institutional investors seeking high-yield fixed income exposure to the sector may want to consider the BondBloxx US High Yield Energy Sector ETF (NYSE Arca: XHYE). The U.S. high-yield bond fund targets the energy sector, including the exploration & production, gas distribution, oil field equipment & services, and oil refining & marketing sub-sectors.
A rule change from the NY Department of Financial Services could increase the demand for fixed income ETFs from New York State-based insurance companies, according to Fitch Ratings.
“The new rule reduces the amount of capital insurers must hold against bond ETFs that meet certain criteria, which may lead NY-based insurance companies to allocate more assets to these ETFs,” said Greg Fayvilevich, senior director at Fitch Ratings.
Investors can try to outpace rising rates by taking on more credit risk with high yield debt issues. For the risk-averse, this might make them queasy, taking on more risk to extract that extra dose of income.
Three main segments of alternative credit are business development companies (BDCs), credit-centric closed-end fund (CEFs) and mortgage real estate investment trusts (REITs).”
Something to note is that alternative credit can be more volatile than traditional income-generating assets, but as HYIN shows, investors are compensated for that risk with a high yield.
Despite the recent turmoil in emerging-markets local bonds, they could be an attractive option based on valuations,” Morningstar said.
One Vanguard offering is the Vanguard Emerging Markets Government Bond Index Fund ETF Shares (VWOB A+).
“Through these ETFs, investors now have an approach that allows them to build a core fixed income portfolio, capturing both the investment grade and high yield universes, while also incorporating sophisticated credit hedge overlays to help protect against sudden shifts in credit spreads
The fund’s core bond exposure will be delivered via the low-cost, highly liquid iShares Core U.S. Aggregate Bond ETF (AGG) with a credit hedge overlay consisting of a combination of CDX calls, quality-junk factor-based hedges, or SPX puts, selected opportunistically by the Simplify team, according to a statement from the firm.
With inflation data weighing heavy on the capital markets, an active management strategy to help navigate the fickle bond markets while getting yield is a must.
TAGG seeks to outperform the Bloomberg U.S. Aggregate Bond Index.
Build Asset Management, an asset management firm specializing in strategies focused on fixed income and options, just launched the BUILD Bond Innovation ETF (NYSE Arca: BFIX), a bond allocation fund designed for a modern global environment defined by low interest rates and constrained economic growth.
Xtrackers by DWS has launched an ETF providing dynamic risk-controlled exposure to U.S. dollar high-yield corporate bonds.
Business loans are picking up, which can open up opportunities for savvy fixed income investors looking to get extra yield.
