Many advisors are using fixed income ETFs as a strategic core position to build portfolios. However, we are increasingly hearing from advisors taking a more tactical approach. There is much uncertainty about the Federal Reserve’s moves in the second half of the year and what it could mean for bond ETFs. Some advisors are turning towards a risk-off approach, while others are leaning into a risk-on one.
VettaFi's Fixed Income Symposium
On Monday July 24, VettaFi will be hosting a three-hour Fixed Income Symposium to help both sets of advisors. For this event, we are bringing together some of the leading asset managers. The event will also include three hours of continuing education credit. Bond market experts from firms like BlackRock, Capital Group, Fidelity, JPMorgan, and PIMCO will be speaking. The fast-moving sessions will be 20 minutes long.
Starting at 11:00 AM ET, the symposium will feature panel discussions on a range of investment styles. I want to highlight two of them. In one session, we will be talking about the ETF opportunities to earn stable income through government bonds. Meanwhile, another session will cover the collateralized loan obligation (CLOs) market and the benefits of using ETFs to access the market.
Navigating the Rate Curve With U.S. Government Bonds
At 11:20 ET on July 24, I will be moderating a session titled “Navigating the Rate Curve with US Government Bonds." This session will feature executives from BondBloxx and F/M Investments. Both firms only recently began offering ETFs, some focusing on single-Treasury bond maturity, Yet, despite their young age, the funds have been highly popular.
The US Treasury 3 Month Bill ETF (TBIL ) came out in August 2022 and now manages $1.2 billion. Meanwhile, the BondBloxx Bloomberg Six Month Target Duration US Treasury Bond ETF (XHLF ) launched in September 2022 and has $835 million in assets. Ultra-short government bonds are as risk-off as ETF investors can get.
See more: ETF360 BondBloxx’s Joanna Gallegos
The ETFs provide single-security exposure to the most current U.S. Treasury security at the named maturity and rolls them forward in an easy, highly liquid format. I’m curious how they might share the benefits of TBIL and XHLF compared to more established ultra-short ETFs like the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL ). In addition, I expect them to discuss how they see advisors implementing these funds to extend duration if the Federal Reserve holds rates steady in the second half of the year.
Make Room for CLOs and Bank Loans
At 12:25 ET on July 24, my colleague Tom Lydon will be hosting a session titled “Make Room for CLOs and Bank Loans.” He will be joined by executives from Panagram, a relatively new ETF provider with an extensive background in structured credit. Executives from VanEck, one of the industry’s largest providers with a broad suite of popular bond ETFs, will also join.
In the last 18 months, both firms launched ETFs that invest in CLOs: the Panagram BBB-B CLO ETF (CLOZ ) and the VanEck CLO ETF (CLOI ). With 30-day SEC yields of 10.9% and 6.3%, respectively, CLOZ and CLOI are more appropriate for risk-on advisors, even as they invest in different ends of the credit spectrum.
A CLO is a portfolio of predominantly senior secured bank loans that are securitized and actively managed. Historically, CLOs have offered strong yields relative to other corporate debt categories, including bank loans, high yield bonds, and investment-grade bonds within the same rating category. CLOs also have limited sensitivity to changes in interest rates, as the bonds are floating-rate instruments.
During the symposium, VettaFi will discuss how these characteristics can be advantageous to advisors building diversified fixed income portfolios. In addition, the panelists are expected to highlight the benefits of using an ETF to tap into the CLO market.
Bond ETFs for Strategic and Tactical Advisors
The above sessions will be compelling for tactically minded advisors. However, there will also be great insights for others taking a more patient approach. Many actively managed core and core plus bond ETFs and mutual funds have the flexibility to invest in CLOs and government bonds. It will be helpful to understand the potential drivers of total returns in the second half of 2023. I can’t wait to see you at the VettaFi Fixed Income Symposium on July 24. Register today and be eligible for up to three continuing education credits.
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