In a prolonged bull market environment where many have taken on greater amounts of risks in search of higher returns, investors shouldn’t overlook the benefits of diversifying with a fixed-income ETF in case of a sudden turn in the markets.
“There are a lot of advisors and people in the industry, investors who are looking at the risk on trade right now, and they are looking for different options that they can have to get away from equities,” Marie Dzanis, Head of Intermediary Distribution and Wealth at Northern Trust Asset Management’s FlexShares, said at the recent Morningstar ETF Conference.
For example, the actively managed FlexShares Core Select Bond Fund (NYSEArca: BNDC) tries to provide attractive risk-adjusted performance by investing in a portfolio of fixed-income securities and is designed to achieve optimal potential for return. Moreover, the active component will adjust to potential changes in interest rate levels, the shape of the yield curve and credit spread relationships while emphasizing liquidity and diversification.
As the ETF manages its exposure to interest-rate risks, the fund managers may take short or long positions in U.S. Treasury futures or transact in interest rate swaps, along with interest rate futures contracts.
“We believe that there is a unique way to get at this market,” Dzanis said.
In a changing market environment, especially with the Federal Reserve looking to tightening its monetary policy and hike interest rates, fixed-income investors will also need to consider various aspects of investing in the debt market, such as interest rate calls, credit and duration.
Alternatively, bond ETF investors can consider an actively managed option like BNDC to access the fixed-income market as the active fund managers will be there to quickly adapt to the ever changing market conditions.
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