Bond fund portfolio manager Dan Fuss thinks that market capitalization-weighted exchange traded funds make sense, but not for fixed-income assets. For the long term, market-cap weighting is logical but not when it comes to which company is issuing the most debt, he said in a recent report.
Long term investing in the S&P 500 makes sense because over time, the index has a bias to companies with higher market caps, said Fuss. When you give market-cap weighting to fixed income, the index is giving the most weight to the company issuing the most debt. [Bond ETF Assets Rise Nearly 40% in a Year]
“It’s the biggest borrowers I’m supposed to give money too? Who’s supposed to go broke here?” he asked.
Fuss manages the $20 billion Loomis Sayles Bond Fund (LSBRX). [Junk Bond ETFs Still Say Risk-On]