Bonds: Total Market
Following its February launch of five equity ETFs and one fixed-income ETF, Capital Group recently launched three active fixed-income ETFs on the New York Stock Exchange. The three new funds include the Capital Group Short Duration Income ETF (CGSD), the Capital Group Municipal Income ETF (CGMU), and the Capital Group U.S. Multi-Sector Income ETF (CGMS). CGSD is a short-duration income fund that pursues high-quality income with low-interest rate sensitivity. CGMU is a core municipal fund that pursues tax-exempt income consistent with capital preservation while seeking total return, and CGMS is a diversified U.S. multi-sector income fund that pursues a high level of current income and the opportunity for capital appreciation. Mike Gitlin, head of fixed income for Capital Group said the following about the three funds, “We’ve deliberately built our three new active ETFs in categories that have historically been underserved by active ETF managers including multisector bond, municipal national intermediate bond and short-term bond. We believe these will help investors manage short-term cash needs, generate tax-exempt income, and benefit from some of the best starting yields we’ve seen in credit in years.”
Finsum:To meet underserved areas of the fixed-income market, Capital Group launched three actively-managed bond ETFs.
Fretting over salting away enough cash for retirement against the backdrop of the helter skelter ride, courtesy of the stock market?
Yeah, it’s a thing.
In the dawning days of September, the S&P 500 index of stocks saw almost 24% fly out the window, according to Sandy Wiggins, of ACG Wealth Management in Midlothian, appearing on wtvr.com. Bonds, what’s more, typically, regarded as a safer option than stocks, also hit the skids. Through that month, Bloomberg US Aggregate – the main bond index – kissed away 14.6%.
“It’s a scary time for investors, especially those who have retired or are planning to in the next few years,” Wiggins said, reported wtlocal.com. “However, the key to successful long-term investing is to keep fear from making decisions in such difficult times. Investor psychology is such that greed in good times and fear in bad lead to overreaction and bad decisions.
“First, realize that timing the market is a losing strategy,” Wiggins continued. “By timing the market, we mean moving from stocks to cash or something else conservative with the expectation of going back when things feel better. The best demonstration of the folly of market timing is to examine the impact on returns by staying invested and missing the best return days.”
American Century Investments recently launched its newest active ETF, the American Century Short Duration Strategic Income ETF (SDSI). The fund, which now trades on the NASDAQ, will seek to generate attractive yield by investing across multiple fixed-income market segments that maintain a short-duration focus. The fund invests in both investment-grade and high-yield, non-money market debt securities. This could include corporate bonds and notes, government securities, and securities backed by mortgages or other assets. SDSI is a transparent active ETF with an expense ratio of 0.32%. The fund management team includes Jason Greenblath, Charles Tan, Jeffrey Houston, CFA, and Peter Van Gelderen. Ed Rosenberg, American Century's head of ETFs, noted that "SDSI expands our existing Short Duration Strategic Income capabilities to an actively managed ETF. The Short Duration Strategic Income ETF seeks to complement an investor's core bond holdings with high current income, broad diversification, and the potential to mitigate the impact of rising rates."
Finsum: American Century continues to build up its active ETF lineup with the addition of the American Century Short Duration Strategic Income ETF.
More...
With yields rising as the Fed pursues its hawkish monetary policy, investors are piling billions into ETFs that track both the short- and long-term treasury market. For example, $13 billion has been added to the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) this year, a product that now offers some of the most attractive yields in over a decade, while having very little interest-rate risk. On the other end of the yield curve, investors have flooded a similar amount into the iShares 20+ Year Treasury Bond ETF (TLT), which has experienced historic losses due to the Fed’s rate hikes. TLT has seen more new inflows than any other fixed-income ETF this year. However, the reasons for these inflows likely differ between the two. Investors seeking yield can now find that in a short-term treasury ETF like BIL, while investors that believe the Fed will slow down rate hikes, or even cut rates in the future, will benefit from the high duration that a long-term bond ETF such as TLT could provide. The steep losses in the market this year have also driven defensive investors into cash-like instruments such as BIL.
Finsum:Investors looking for yield and safety are piling into short treasury ETFs, while investors seeking high duration are flooding into long-term bond ETFs.
A, um, fixation, among investors this year: the performance of fixed income assets, according to Wells Fargo.
Wells Fargo published several reports on issues playing a role in the challenging environment today. The intent of the executive summary was to address heard often voiced by investors. Some of the top questions revolving around fixed income included:
- What is happening to bonds so far in 2022?
- Why continue to invest in bonds?
- Why is the Fed garnering so much attention this year?
- What should investors expect from the remaining three Fed meetings of this year?
- What does Fed quantitative tightening mean?
- What do you mean when you say, “financial conditions in the economy are tightening”?
- Should we be worried about liquidity in bond markets?
Equity and fixed income markets simultaneously endured negative returns in the first of the year – catching a number of investors off guard. While all major fixed indexes bounced back in July in light of receding yields, year to date, they remain negative.
Inflation? Yep; it’s stuck in gear; that is, elevated. Meantime, the broader economic environment – especially the labor market, has proved to be one tough cookie, according to gsam.com.
”Higher inflation and higher growth volatility are propelling us into a higher yield environment, marking a departure from the post-financial crisis era,” according to Whitney Watson, global head of Fixed Income Portfolio Management, Construction & Risk. “Ultimately, we think this presents opportunities in high-quality fixed income assets, such as investment grade corporate bonds and agency MBS.”
State Street Global Advisors is teaming up with Barclays’ research business to build and manage active products in systematic fixed income. While systematic equity strategies have been around for a while, the strategy is somewhat new to fixed income due to a lack of data. While most stock trades are easy to track, fixed-income trades are typically over-the-counter, with electronic platforms only handling a part of the business. This makes accessing and harvesting data in fixed-income markets more complex. However, that’s changing. Efficiency in the bond markets is increasing the viability of implementing systematic debt strategies. With fixed income, managers attempt to generate alpha through data analysis that uncovers asset mispricing, according to SSGA. This comes as the demand for systematic fixed income is increasing. According to a State Street survey of 700 investors, 91 percent of institutions are interested in using systematic fixed-income strategies over the next 12 months. The survey also showed that investors managing more than $10 billion were most interested in implementing these strategies using investment-grade and high-yield corporate securities.
Finsum: As demand for systematic fixed-income strategies heats up, State Street Global Advisors and Barclays are teaming up to build and manage active systematic fixed income strategies.