Credit sectors offer the best long-term opportunities in the fixed-income space, say BlackRock analysts. Investors can gain exposure to the area through high-yield and floating rate exchange traded funds.
“In the taxable fixed income space, we believe the best long-term opportunities can be found in the credit sectors of the market,” according to a BlackRock research note.
Given the Fed’s commitment to maintain loose monetary policies and to move forward with its quantitative easing program, yields on government securities will remain depressed at levels investors would not find appealing.
Nevertheless, BlackRock analysts suggest that investors should look to the corporate debt markets as an alternative to government debt. [Fixed-Income ETFs for Yield: Junk Bonds, Emerging Markets and More]
“Two areas of the market we find particularly attractive are high yield bonds and floating-rate loans, both of which are compelling from a fundamental perspective,” the analysts wrote. “High yield bonds are also benefiting from low default rates and floating-rate loans offer both attractive valuations and longer-term protection from potentially higher interest rates.”
Some high yield bond ETF options include:
- iShares iBoxx $ High Yield Corporate Bond Fund (NYSEArca: HYG): 5.45% 30-day SEC yield
- SPDR Barclays Capital High Yield Bond ETF (NYSEArca: JNK): 5.70% 30-day SEC yield
- PowerShares High Yield Corporate Bond Portfolio (NYSEArca: PHB): 3.82% 30-day SEC yield
- PIMCO 0-5 Year US High Yield Corporate Bond Index Fund (NYSEArca: HYS): 4.15% 30-day SEC yield
Additionally, investors may consider floating rate note ETFs to help against rising rates. Floating rate notes come with variable coupons. The coupon rates are periodically adjusted, which help protect against capital erosion in a rising rates environment.
- iShares Floating Rate Note Fund (NYSEArca: FLOT): 0.78% 30-day SEC yield
- SPDR Barclays Capital Investment Grade Floating Rate (NYSEArca: FLRN): 1.24% 30-day SEC yield
- Market Vectors Investment Grade Floating Rate (NYSEArca: FLTR): 1.02% 30-day SEC yield
For more information on fixed-income options, visit our bond ETFs category.
Max Chen contributed to this article.