The Power of Active Bond ETFs in 2017

Given the rising rate environment ahead, more investors are looking into actively managed exchange traded funds that are better equipped to adjust and adapt to quickly changing conditions.

ETF Trends publisher Tom Lydon spoke with Jonathan Stanley, Managing Directory and Portfolio Manager at Newfleet Asset Management, at the Inside ETFs conference that ran Jan. 22-25, 2017 to talk actively managed bond strategies.

“Active management is, we think, very powerful,” Stanley said. “If you look when people think of a bond market, they think of agency mortgage-backed and U.S. Treasury. We make all our money in all the none cores but satellite sectors, such as high-yield, leveraged loans, emerging markets. That’s what where we think we can make a lot of money for our investors.”

After years of falling rates, benchmark Barclays U.S. Aggregate Bond Index is now heavily tilted toward longer duration U.S. government debt, which may expose investors to increased risks if rates continue to inch higher.

“We think we’ve been in a bull market for the last 30 years, driven by primarily Treasury rates,” Stanley said. “We think now that there’s a potential for rates to increase. We think you have to be cognizant of not only credit risk but interest rate risk, and that’s what we do well at Newfleet.”

Fueling the rising interest rate environment, Donald Trump’s presidential election win and his promises to enact deregulation, implement tax cuts and increase fiscal spending have added to an expansionary outlook. Consequently, the Federal Reserve is considering a tighter monetary policy ahead to head off a potentially overheating economy.