Despite concerns over Federal Reserve interest rate hikes, fixed-income exchange traded funds remain a go-to asset for protecting principal in a potentially volatile year and generating yields along the way.
On the upcoming webcast, Tactical Income Strategies for the Modern Advisor, Matthew Bartolini, Vice President and Head of SPDR Americas Research at State Street Global Advisors, Mike Dickson, Director of Structured Financial Solutions at Horizon Investments, and Bryan Novak, Senior Managing Director of Astor Investment Management, will look to the current fixed-income environment and consider alternative income solutions advisors can implement at a reasonable risk.
Bond investors who still want to hold onto fixed-income assets in a rising interest rate environment ahead may consider actively managed strategies that are able to quickly modify holdings to adjust to a changing environment.
For example, the SPDR DoubleLine Total Return Tactical ETF (NYSEArca: TOTL) has been a popular active bond play for ETF investors. TOTL is an actively managed ETF backed by bond guru Jeff Gundlach and is also seen as an ETF adaptation of the flagship DoubleLine Total Return Fund (DLTNX). DoubleLine and SSGA have also partnered up with the more recently launched SPDR DoubleLine Short Duration Total Return Tactical ETF (BATS: STOT) and SPDR DoubleLine Emerging Markets Fixed Income ETF (BATS: EMTL).
TOTL provides a higher yield and lower duration than the benchmark Barclays U.S. Aggregate Bond Index, with a smaller standard deviation. Additionally, the active ETF has a greatly diminished exposure to U.S. Treasuries while over-weighting agency MBS, non-agency debt, emerging market bonds, bank loans and high-yield, among others.
Investors have also turned to high-yield debt as a way to cushion against any potential pullback due to rising rates. Additionally, high-yield debt has traditionally shown a greater correlation to equities in a rising rate environment.
Alternatively, investors can look to senior secured floating rate bank loans as a high-yield option that limits rate risk. The actively managed SPDR Blackstone/GSO Senior Loan ETF (NYSEArca: SRLN) provides exposure to senior secured floating rate bank loans.
A senior loan is a private loan taken from an underwriting bank or a syndicate of lenders. The loans are secured in that they are backed by the borrowers’ assets, which act as collateral. If the borrower defaults, lenders have a senior claim on the defaulters’ assets. Moreover, senior secured floating-rate loans have, as their name suggests, a floating interest rate component, which fluctuates with market rates.
Financial advisors who are interested in learning more about fixed-income strategies in the current market environment can register for the Thursday, March 9 webcast here.