Still holding onto cash? Many U.S. investors are, with trillions still siting in cash for steady yields. That said, falling interest rates could see cash yields drop. With many investors revisiting their portfolios overall, the time could be now to make a move into fixed income from cash. Fixed income opportunities vary from safer, investment-grade bonds to high-yield securities. An active fixed income investing approach, specifically, could boost portfolios with the expertise needed to outperform dropping cash yields.
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What kind of outlook looms for potential further rate cuts? While the group of cuts that have already arrived seem significant after such a prolonged wait, there have only been three. Rates still sit at about 4.5% to 4.75%, significantly higher than post-Global Financial Crisis levels. That range is also on the higher side for the 21st century overall. Many market watchers expect further cuts next year, which could continue to eat into cash yields.
Now, then, could be the time to get into active fixed income investing. Yes, a lot of cash investors do have fixed income investments, but an active approach, in particular, can stand out. Fixed income offers some potent opportunities, but often getting the most out of them requires experience. Rolling bond expiration dates and assessing credit fundamentals often leans on knowledgeable active managers.
High yield bonds, for example, can provide very appealing yields, but given the risks therein, active management can help. Active managers can assess the fundamentals of a bond issuer, often getting a better sense of a firm’s credit quality.
The T. Rowe Price Total Return ETF (TOTR ) presents an interesting active fixed income investing opportunity. Charging 32 basis points, the fund hit its three-year ETF milestone in September. It leans on T. Rowe Price’s fundamental research capabilities in an effort to maximize total return. For those investors looking for opportunities outside of cash should yields drop, the fund could intrigue.
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