Displaying items by tag: credit

Tidal Financial Group recently announced the launch of the Senior Secured Credit Opportunities ETF (SECD), its first actively managed credit ETF. The fund, which is managed by Gateway Credit Partners seeks to generate consistent income and preserve capital by investing in a combination of first-lien senior secured loans and secured bonds to businesses operating in North America. Gateway is a value-based credit manager that focuses on capturing fundamental and technical inefficiencies in the leveraged loan and high-yield bond market. The firm focuses on generating true alpha which they define as yield per turn of leverage significantly greater than their representative indices. It believes a “size arbitrage” exists in credit markets as rating agency models can over-emphasize size vs credit fundamentals. Tim Gramatovich founder of Gateway had this to say about the ETF launch, “At over $3 trillion, the US loan and high-yield bond markets offer investors a tremendous opportunity to generate yield. We believe SECD fills a much-needed gap in the actively managed corporate credit space particularly as it relates to the loan market.”

Finsum:Tidal Financial Group recently launched an actively managed credit ETF that aims to take advantage of higher yields in the loan market.

The $4 trillion municipal debt market is expected to have a “bounce back year” in 2023, according to Charles Schwab’s Cooper Howard. The director and fixed-income strategist for the Schwab Center for Financial Research said in a recent Bloomberg TV interview that “A slower pace of interest-rate hikes, attractive yields, and relatively healthy state and local government finances should lure investors back after demand plunged this year.” He also stated “Credit quality is very high in the municipal bond market. State and local revenues have surged to record-level highs driven by the economic recovery. Given the rise in yields, it is more attractive for retail investors, so there will be more demand coming into the market.” Munis had fallen out of favor due to a combination of inflation and recessionary concerns. According to data compiled by Bloomberg, muni sales are down nearly 19% this year at about $351 billion. However, 10-year municipal yields have more than doubled since the start of the year. While recessionary fears may continue, the municipal market won’t be as affected due to healthy credit ratings. Howard expects municipal debt tied to public transportation to lead the rebound as the airline industry is bouncing back.

Finsum:Schwab strategist Cooper Howard predicts a bounce-back year for munis due to slow rate hikes, attractive yields, and healthy credit in state and local governments.

According to Bloomberg data, the iShares iBoxx $Investment Grade Corporate Bond ETF (LQD) saw $3 billion in outflows on Monday, its largest one-day outflow since the fund’s inception twenty years ago. The exodus was quite the reversal for LCD as the ETF saw six straight weeks of inflows. The fund was up 9% between October 20th and Friday, with investors pouring money back into credit with the hope that the Fed might slow down the pace of rate hikes. However, those hopes fell as St Louis Fed President James Bullard warned that “markets are underpricing the risk that the central bank will have to be more aggressive rather than less aggressive.” In response, LQD dropped 0.7% on Monday, its worst performance in over a month. As of Monday’s close, the ETF was down 19% for the year, its biggest loss ever. Peter Chatwell, head of global macro strategies trading at Mizuho International told Business Insider that “The fund’s recent rebound likely exacerbated the withdrawals as year-end approaches. Clearly, at this time of year, some money gets taken out of the market, particularly if performance has recently been strong, which with LQD it has.”

Finsum:LQD saw its largest one-day outflow ever as St Louis Fed President James Bullard warned that the Fed will need to become more aggressive, not less aggressive.

In a recent article in FT Adviser, Lumin Wealth Investment Manager Elliott Frost wondered how much alpha left is in active fixed income. Frost believes that a fixed income allocation should include a strategic mix of active and passive management. He notes that active fixed-income managers have generally outperformed passive strategies in the fixed-income space due to several reasons. The first is that companies with the most debt typically make up the largest component of a fixed income market index, leaving the portfolio more exposed to unfavorable changes in credit. Another reason is the lack of risk mitigation. Passive managers cannot “dial up or dial down risk.” However, he noted that the alpha generated by active managers has been to some degree, due to a long-term overweight on credit. Frost believes that if we account for a manager’s credit exposure, fees, and other factor exposures such as volatility, there might not be much alpha left. This is why he recommends not putting “all your eggs in one basket” and incorporating a passive fixed index into a portfolio for cheap access to a liquid market.

Finsum: Lumin Wealth’s Elliott Frost wonders if there is much alpha left in active fixed income once a manager’s credit exposure, fees, and volatility are accounted for.

According to a recent report by Fitch Ratings, U.S. insurers are expected to continue to increase their fixed-income ETF holdings. In December, New York introduced new guidelines that allowed a fixed income ETF to receive bond-like capital treatment if the ETF is rated by a nationally recognized statistical rating organization. However, if rated, an ETF can receive this treatment only if it is invested in fixed income securities and cash, is passively managed, and has at least $1 billion in assets under management, among other criteria. So far, Fitch has rated 10 fixed-income ETFs from VanEck, Vanguard, and Invesco. Insurers have previously sought to increase their ETF holdings due to a mix of diversification, increased liquidity, and the ability to adjust overall portfolio allocations. According to SNL data, ETF holdings at insurers jumped from $3 billion in 2016 to $9.8 billion at the end of 2021.

Finsum:Since New York introduced new guidelines that allowed a fixed income ETF to receive bond-like capital treatment, insurers have been increasing their fixed income ETF holdings.