Riskier Bond ETFs Are Back in Play

  • Fixed-income ETF investors may want to favor riskier plays
  • Investment-grade corporate bonds, high-yield debt and bank loans may boost returns while offering less volatility than stocks
  • Bond investors interested in riskier investments with the promise of higher yields can turn to speculative-grade or junk bond ETFs

With all the doom-and-gloom dissipating and the market rebounding, fixed-income exchange traded fund investors may want to ditch their safe-haven bets in favor of more riskier plays.

Pacific Investment Management Co. has advised investors to move out of the safety of government debt and into corporate credit since the U.S. will likely dodge a recession, report Susanne Walker Barton and Wes Goodman for Bloomberg.

“PIMCO’s belief that the U.S. economy will avoid recession this year bolsters our view that it’s time to move into credit,” Mark Kiesel, chief investment officer for global credit at PIMCO, said. “Credit, in our opinion, is in the ‘sweet spot’ intermediate zone between lower-risk sovereign assets, which tend to outperform leading into recession, and higher-risk assets such as equities.”

Specifically, Kiesel pointed to investment-grade corporate bonds, high-yield debt and bank loans, which may boost returns while offering less volatility than stocks.

Moreover, Kiesel argues that the relatively high interest rates in the U.S., compared to the rest of the developed world, will help increase demand from foreign investors for U.S. assets.

Mark Notkin, who manages the Fidelity Capital & Income Fund, also expects high-yield debt to further strengthen and believes the rising default fears have been overblown, reports Charles Stein for Bloomberg.