As we explore the current marketplace, fixed income exchange traded fund investors should consider what to look for from their external fixed income managers and ways that asset managers can add value. In the recent webcast, Bonding Over Fixed Income: Beyond ESG Ratings and Labels , Janelle Woodward, president of MacKay Shields LLC, highlighted the growing demand for environmental, social, and governance principles among investments and how investors have targeted this growing market segment.
With the S&P 500 inching to new highs, it’s no wonder that equities are seeing the majority of fund flows in Vanguard’s ETF suite, but a pair of bond funds are also receiving strong flows year-to-date. As part of the top five in fund flows YTD, bond funds like the Vanguard Total Bond Market Index Fund ETF Shares (BND) and the Vanguard Short-Term Bond Index Fund ETF Shares (BSV) are making the cut.
Investors can use fixed income exchange traded funds to navigate these difficult times and access potentially attractive opportunities. In the recent webcast, Navigating Fixed Income: Where to Go with Volatile Rates and Low Yields , Brian McMullen, fixed income ETF strategist at Invesco, underscored the difficulties of finding attractive yields without taking on too much risk in today’s market environment where core bond valuations are now higher than pre-COVID levels.
Getting inflation protection is one thing, while targeting duration is another. Both can be accomplished with the FlexShares iBoxx 3-Year Target Duration TIPS Index Fund (TDTT) and the FlexShares iBoxx 5-Year Target Duration TIPS Index Fund (TDTF) .
Extracting more yield in the current environment requires looking at other opportunities like emerging markets (EM), which outperformed their bond peers during the month of August. Given that outperformance, the time is right to look at ETFs like the Vanguard Emerging Markets Government Bond Index Fund ETF Shares (VWOB) .
We all know that yield can be difficult to come by lately. On top of that, interest rates seem as uncertain as ever. While that dichotomy may be daunting, there’s still opportunities to be had in today’s fixed income markets.
Bond exchange traded funds strengthened on Friday, with U.S. Treasury yields higher as investors sold off risk and positioned for the Federal Reserve meeting next week. The Federal Reserve meets for two days next week and is expected to provide further details on Wednesday regarding when it could start to taper its $120 billion in pandemic-era monthly bond purchases that have supported the economic recovery so far.
Bond exchange traded funds strengthened on Thursday with yields falling off as initial jobless claims dipped to a new coronavirus pandemic-era low. On Thursday, the Vanguard Intermediate-Term Treasury Index Fund ETF Shares (VGIT) was up 0.1%, and the Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT) rose 1.1%.
Exchange traded fund investors are throwing money into strategies that help hedge against a rising inflationary market environment. For example, ETF investors poured a combined $1.1 billion into the iShares US Real Estate ETF (IYR) and iShares TIPS Bond ETF (TIP) on Wednesday, according to Bloomberg.Meanwhile, ETF investors yanked $900 million out of the iShares 7-10 Year Treasury Bond ETF (IEF).
International bond exchange traded funds could be in trouble as investors think about cutting exposure to Eurozone debt with the European Central Bank looking to taper its emerging bond-purchasing program.
Getting high yield exposure doesn’t mean fixed income investors have to settle for the riskiest debt when you add a value-added strategy to the mix with ETFs such as the FlexShares High Yield Value-Scored Bond Index Fund (HYGV) .
As we explore the current fixed income market, investors should consider the risks associated with inflation and consider alternative strategies on the loan and credit space.
Getting targeted fixed income exposure can help extract more yield in the current market, which is inherent to both the Global X TargetIncome 5 ETF (TFIV) and the Global X TargetIncome® Plus 2 ETF (TFLT) . Both funds offer investors an alternate income stream that outdoes Treasury yields.
Fixed income investors know credit quality matters, and that’s particularly true with corporate bonds. Corporate debt with investment-grade ratings feature lower yields, but less risk. Those with junk grades sport higher yields to compensate investors for higher risk.
