High yield corporate bonds are outperforming, signaling economic optimism, yet some experts predict a pause. The WisdomTree U.S. High Yield Corporate Bond Fund (QHY) offers a rules-based benchmark with a 6.40% yield. QHY’s methodology may benefit risk-tolerant investors in uncertain economic times, potentially steering clear of weaker issuers. Market observers expect wider credit spreads, highlighting the importance of QHY’s approach.
The bond market outlook includes expectations of significant rate cuts by the U.S. Federal Reserve, with potential for continued positive performance. The upcoming U.S. election is a key factor to monitor due to the potential impact on market volatility. Investors are advised on short-duration securitized credit sectors and the Eaton Vance lineup of ETFs offering various income opportunities.
Equity investors often seek monthly income through dividend payments, but this comes with risk. Calamos Alternative Nasdaq & Bond ETF (CANQ) offers a solution by merging large-cap equities with monthly bond income. Benefits include potential upside with FLEX Options, monthly yield from bond investment, and active management for market capitalization. CANQ provides exposure to Nasdaq-100 while de-risking monthly income.
The popularity of ETFs continues to rise, but there’s still room for growth in adoption. Diversification is a top priority for investors, with some preferring individual bonds for precision. Various ETFs, such as those offering exposure to BB-rated bonds and fallen angels, provide different risk and return profiles, complementing traditional bond investments.
The BlackRock Flexible Income ETF (BINC) has quickly reached nearly $4 billion in assets, outperforming index-based ETFs and boasting a 6.0% 30-day SEC yield. Led by BlackRock’s CIO of global fixed income, Rick Rieder, BINC provides access to diverse fixed income opportunities, particularly in high-yield corporate bonds and other appealing sectors. This represents a timely opportunity for investors.
The latter half of 2024 is looking promising for active bond ETFs, as discussed by Fidelity’s Michael Plage, CFA. He emphasizes factors such as inflation, employment, and the Fed’s response to data. The limitations of passive bond investing create opportunities for active managers, as shown by Fidelity’s active fixed income strategies with FTBD and FIGB.
Schwab Asset Management launched its first actively managed fixed income ETF, the Schwab Ultra-Short Income ETF (SCUS), with a low net expense ratio of 0.14%. SCUS aims to provide investors with current income, capital preservation, and liquidity by investing in short-term investment grade securities. The fund’s focus on short-duration assets helps mitigate risks from shifting interest rates.
Bond and related ETFs could be poised for success as market turbulence prompts calls for earlier Fed rate cuts. The WisdomTree U.S. Short Term Corporate Bond Fund (QSIG) is a compelling option for income investors, as the economy cools and potential Fed rate cuts benefit high-quality bonds. QSIG’s strong fundamentals and sector exposure add to its appeal.
The KraneShares Sustainable Ultra Short Duration Index ETF (KCSH) offers low-risk income investing with notable yields and diversification. It focuses on ultra-short investment-grade corporate bonds in USD, aiming to outperform Treasuries and money markets. The strategy emphasizes sustainability, excluding fossil fuel issuers and aligning with the Paris Agreement. This makes KCSH a strong addition to an income portfolio.
Investors are seeking bond exposure in anticipation of interest rate cuts, aiming to benefit from rising bond prices as yields fall. The NEOS Enhanced Income Aggregate Bond ETF (BNDI) provides core bond exposure and income through its active management, including a put option strategy and tax-efficient approach. With a distribution yield of 5.2%, it offers an opportune investment option.
Over the past two decades, the corporate bond market has evolved significantly, with the investment grade (IG) market growing by 308% to $6.6 trillion, and the high yield (HY) market growing by 131% to $1.3 trillion. This growth has led to a shift in the quality and composition of both markets, offering diversification opportunities for investors.
Speculation is growing that the Federal Reserve may cut interest rates by up to 50 basis points. As a result, investors are looking into fallen angel bonds, which have historically outperformed in similar scenarios. The VanEck Fallen Angel High Yield Bond ETF (ANGL) is a potential vehicle for this strategy, offering a 30-day SEC yield of 6.54%.
The Q3 Fixed Income Symposium, hosted by VettaFi, featured insight from industry leaders. They discussed expectations for interest rate cuts, potential investment options, active management momentum, and strategies for managing interest rate risk and inflation protection. Attendees highlighted the rise of actively managed fixed income strategies and projected continued dominance of fixed income discussions into 2025.
Corporate bonds offer a balance of yield and credit quality, making them attractive for investment-grade portfolios. MarketWatch noted increasing demand, particularly for tech giants’ bonds like Nvidia and Amazon. Vanguard offers three corporate bond options: VCSH for short maturity, VCIT for intermediate yield and rate balance, and VCLT for maximum yield.
