The Federal Reserve continues to mull interest rate policy. So it’s still an excellent time for fixed income investors to capture yields in the higher-for-longer rate environment. One ETF they should consider is the Neuberger Berman Total Return Bond ETF (NBTR).
The European Central Bank continuing to cut rates puts the Fed in the pressure cooker to head down the same path. At the same time, the heat is being turned up by President Trump, who is using the bully pulpit to force the Fed’s hand. Despite this, hopes for a rate cut continue to dissipate.
The Fed continuingto stand pat on rates leaves the door open for investors to snag yield while they can.
“With yields higher today than the recent zero interest rate periods, the risk reward of bonds is more attractive for investors,” said David Templeton, portfolio manager at HORAN Capital Advisors, who included the table below that highlights the state of current yields across various bond categories.
As Templeton explained, the gray bars indicate the range of yields for that specific bond type within the last 10 years. The blue diamond is where yields currently stand, which are mostly in the elevated portions of the gray bars.
“In most cases on the left the diamonds or yields are in the top quartile of yields over that time period,” Templeton explained.
In short, the time to strike is now, before the Fed finally eases monetary policy. Regarding NBTR, it takes advantage of yields across a variety of bonds.
Dynamic Approach to Yields
With its active management, NBTR takes a dynamic approach to capturing yields. The fund searches for opportunities across a broad set of fixed income opportunities, reaching outside the limitations of benchmark sectors.
When it comes to maximizing yield, it typically means having to sacrifice credit quality, but that’s not the case with NBTR. The fund eschews overweighting allocations to riskier corners of the debt market, opting to dynamically adjust holdings according to the portfolio managers’ assessments on bonds that carry high value. Backed by the fund’s research team, only the best ideas are selected for inclusion in the fund.
To minimize sensitivity to interest rate movements, NBTR’s portfolio managers adjust rate and yield curve exposures to lower duration. Typically, this results in staying within a moderate band of ±2 years of the fund’s benchmark.
Moreover, NBTR is heavily diversified, adding over 400 holdings (as of June 6) that include both government and corporate bonds. Having that mix of quality and yield gives investors a healthy balance of adding investment-grade debt issues while still maximizing income. Adding to the income diversification is a mix of mortgage- and asset-backed securities.
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