Fixed income is a complicated place to be right now, to put it mildly. While interest rate hikes have brought life back to what had become a relatively staid asset class, Fed-related uncertainty has offered more questions than answers. VettaFi’s recent Fixed Income Symposium saw leaders from American Century Investments and Goldman Sachs join a panel to discuss fixed income and where to take on credit risk.
See more: How Much Credit Risk Should You Take On?
Credit Risk in Fixed Income
American Century Investments’ VP, Senior Portfolio Manager, and Director of Corporate Credit Research Jason Greenblath, and Goldman Sachs’ Head of Investment Strategist Team Matt Wrzesniewsky joined a panel hosted by VettaFi’s Head of Research Todd Rosenbluth to discuss.
The panel on “Where to Take on Credit Risk” touched on questions about credit risk and bonds. Recession risk has pushed out into the future, Greenblath explained. At the same time, he said, total returns haven’t looked as great, with the duration question playing a role.
Per Wrzesniewsky, investors are coming into fixed income particularly for yield. Investors “muddled along” last year waiting for the year of the bond, he said, getting into high yield this year.
During the segment, viewers responded to a poll about their own fixed income preferences. Thirty percent of respondents shared that they prefer high yield corporates, with the same number interested in investment-grade. The rest of the respondents pointed to Treasuries, mortgages, and agency bonds.
Between investment-grade and high yield, Greenblath shared his belief in taking on some credit risk.
“Credit spreads where we transact and we’re negotiating, where we make our buy-and-sell decisions at the index level, don’t look that great,” he explained. “They’re at the tight end of the range.”
“I think the benefit where we can come in and help investors is to look under the surface, the security selection…whether it’s in high yield corporates or esoteric parts of the securitized market …we can find securities that we think will outperform,” Greenblath added.
Wrzesniewsky pointed to an abundant amount of carry available in the fixed income market. He also noted that he’d lean a bit more toward high yield because maximizing yield right now appeals to investors.
“I think we would probably lean towards high yield … because the backdrop from an economic perspective continues to look quite favorable,” Wrzesniewsky said.
ETF Options
Both firms offer a variety of fixed income ETFs for those investors looking to add credit risk. For Goldman Sachs, that includes ETFs like the Goldman Sachs Access High Yield Bond ETF (GHYB ). The fund charges a 34 basis point (bps) fee to track the FTSE Goldman Sachs High Yield Corporate Bond Index. It has returned 9.7% over one year, according to Goldman Sachs.
American Century Investments, meanwhile, has its own ETFs to offer. The American Century Multisector Floating Income ETF (FUSI ) may appeal. It charges a 27 bps fee to actively invest. It invests with a sector rotation approach, looking for securitized debt like CLOs, floating rate commercial mortgage securities, and more. FUSI has returned 7.4% over one year, per American Century Investments.
“FUSI is a floating rate portfolio. If your mindset is … is that the Fed is on hold higher-for-longer, or even longer, this portfolio is going to benefit,” Greenblath said.
For more information, please visit VettaFi.com | ETF Trends.
