The S&P 500 is up over 15% year-to-date, but bonds may be looking more attractive from a value standpoint. This includes riskier corporate bonds that can offer fixed income investors more yield in a current rising rate environment.
“No matter how you slice it, stocks just aren’t that attractive relative to bonds these days,” a Barron’s article said, noting that the current rally in the S&P “has pushed the index’s valuation multiple higher, while bond yields have held their ground.”
For fixed income investors looking to shift from safer government bonds in order to extract more yield, corporate bonds are worth a look in return for accepting more credit risk.
“When it comes to earning the highest yields, corporate bonds often come out ahead of Treasury bonds issued by the federal government and municipal bonds issued by state and local governments,” a Motley Fool article explained.
With a vast universe of corporate bonds to choose from, an easier way to obtain exposure is via exchange-traded funds (ETFs). Another question remains — exactly which ETF?
An Active, Diversified Bonds ETF Option
ETFs can come in passive and active varieties. The latter is typically deemed as more expensive, but at 29 basis points, one fund worth considering is the American Century Diversified Corporate Bond ETF (KORP ).
The active strategy puts the debt holdings in the hands of investment professionals rather than individual investors or advisors hand-picking the bond holdings themselves. In the case of KORP, those holdings amount to over 200, giving the fund a healthy dose of diversification.
Furthermore, the fund skews more towards debt with shorter maturities (about 80% of its holdings are comprised of bonds under a 6-year duration). As Federal Reserve rate hikes dissipate, this can allow investors to lock into the higher yields of today.
KORP offers yield while also maintaining investment-grade quality. Per its fund description, it seeks current income by emphasizing investment-grade debt while dynamically allocating a portion of the portfolio to high yield.
Per its product website, KORP creates a systematically managed portfolio that integrates fundamental and quantitative expertise that:
- Adjusts investment-grade and high yield components to balance interest rate and credit risk.
- Screens individual credits to seek those with sound fundamentals, reduced default risk, attractive valuations, and liquidity.
- Adjusts industry and duration exposures as risks and opportunities emerge.
- Offers cost effectiveness with a relatively low 0.29% expense ratio.
For more news, information, and analysis, visit the Core Strategies Channel.
