Conventional wisdom is that bonds can offer an investment portfolio good diversification—provided the rates are good. If rates are at basement levels like they were at the beginning of the year, then fixed income is a poor diversifier. As bond yields rise, their risk falls, which improves fixed income’s ability to diversify.
And while the headlines for bonds are currently bearish, Barron’s is reporting that with yields up, fixed income still provides some strong opportunities as portfolio diversifiers. Treasuries currently yield 2.5% to 2.7% across the maturity spectrum, from two to 30 years. High-grade corporate bonds, meanwhile, are about 4%; preferred stock, 5%; and high-yield bonds approaching 6%.
Barron’s added that raising rates to as much as 3% by the end of the year (as the Federal Reserve has signaled it’s considering), that could push the economy into recession, thus making equities a potentially riskier asset.
In February, BondBloxx launched seven U.S. high-yield bond ETFs offer precise, index-based exposure to the high-yield asset class and allow investors the opportunity to diversify and manage risk in the industry sector. The funds are passively managed and track rules-based sub-indexes of the ICE BofA US Cash Pay High Yield Constrained Index.
BondBloxx was founded by ETF industry leaders Leland Clemons, Joanna Gallegos, Elya Schwartzman, Mark Miller, Brian O’Donnell, and Tony Kelly. The team has collectively built and launched over 350 ETFs at firms including BlackRock, JPMorgan, State Street, Northern Trust, and HSBC.
According to the issuer, more institutional investors are acknowledging the role that fixed-income ETFs can play in their portfolios, even during times of volatility. They can offer short-term liquidity while offering a more efficient way to keep portfolios in balance. Sector ETFs enable intentional tactical tilts to be added to their portfolios. They can also enhance price discovery, even when transparency is low, or the underlying securities are not trading.
BondBloxx co-founder Joanna Gallegos told ETF Trends in January that the firm’s “focus is on building precise exposures for institutional investors that want to execute specific investment views and have additional tools to manage risk.”
“There’s a profound gap between the size of the bond market and the sophistication of available tools, like ETFs,” Gallegos explained. “Institutions are looking for products that give them precise exposure, but they’ve really been limited in what they can do since these types of tools are underrepresented in the ETF landscape. Most fixed income products in the market are broad-based.”
For more news, information, and strategy, visit the Institutional Income Strategies Channel.