Given the murky macroeconomic landscape, navigating the fixed income markets can be a tricky undertaking. MFS Co-CIO of Fixed Income, Pilar Gómez-Bravo, provided valuable insights on the current fixed income environment in an interview: Navigating the Fixed Income Valuation Conundrum.
While markets have been doused in uncertainty stemming from tariffs, geopolitical tensions, changing interest rate policy, and other factors, the broader fixed-income market has been relatively resilient. This is especially true for fixed-income assets with stronger credit fundamentals, such as investment-grade debt.
“If you look for system-wide indicators of stress or if you look at the investment-grade markets, we’re seeing a more broadly stable environment,” said Gómez-Bravo, noting that credit risks are “heightened, but contained for now.”
Gómez-Bravo noted that there are four specific macro risks: growth, inflation, monetary policy, and fiscal policy. The confluence of all four factors will continue to play a role in determining how the fixed income market will unfold from a forward-looking perspective.
“There’s still a lot of unpredictability in the global stage,” Gómez-Bravo summarily said, but added that it’s still an exciting time for the fixed income markets, where there are still opportunities to exploit.
That said, investors don’t need to stay on the sidelines due to unpredictability and uncertainty. This is where an actively managed fund can benefit a portfolio.
2 Active Fixed Income Options
As noted in the interview with Gómez-Bravo, systematic risks are a major concern for fixed income markets. Furthermore, there are idiosyncratic risks inherent in specific sub-sectors of the bond market. This makes an active management strategy a necessity. With that, MFS offers a pair of funds investors should consider for fixed-income exposure: the MFS Active Core Plus Bond ETF (MFSB ) and the MFS Active Intermediate Muni Bond ETF (MFSM ).
Per the MFSB fact sheet, the fund uses a “primarily investment-grade bond strategy that integrates macro, bottom-up, and technical perspectives in an effort to add value through sector and quality allocation, security selection, and also duration/yield curve decisions. The fund could serve as a standalone exposure for investors looking for a core bond alternative.
Municipal bonds this year have attracted investor attention for their strong credit fundamentals and yields. Of course, the federal tax-free income is also a draw. MFSB exploits inefficiencies in municipal credit markets via active sector, quality, and security selection. Exposure focuses on munis with intermediate maturities for added yield opportunities during this rate-cutting cycle. Adding active management to a nuanced muni market means the fund’s portfolio managers can look to maximize opportunities in munis for income as well as price appreciation.
For cost-conscious investors, both funds have expense ratios of just 34 basis points, or $34 per $10,000 invested.
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