Getting dynamic exposure to the bond markets is even more imperative now that central banks are looking to scale back their stimulus measures. As such, rising interest rates make for a tricky bond market to navigate.
Over time, rising interest rates can erode income. Investors locking in a specific yield to maturity might be missing out on bonds with a higher coupon rate as the central bank policy gets tighter.
Investors can try to outpace rising rates by taking on more credit risk with high yield debt issues. For the risk-averse, this might make them queasy, taking on more risk to extract that extra dose of income.
“Leading central banks such as the US Federal Reserve and Bank of England are widely expected to kick off the process of ‘quantitative tightening’ in the coming months, complicating the outlook for bond investors who are already grappling with runaway inflation and the specter of aggressive interest rate rises this year,” reported the Financial Times.
“Central bank balance sheets will shrink in aggregate in size for the first time in history,” said Ralf Preusser, global head of rates research at Bank of America. “Some central banks may also experiment with [actively selling bonds], where we also have no experience.”
Getting Active With TAGG
Given the challenges fixed-income investors face, it might be best to put a bond portfolio under the auspices of professional management. As such, an ETF like the actively managed T. Rowe Price QM U.S. Bond ETF (TAGG) puts a bond portfolio in the hands of proven professionals.
The volatility that investors have seen as of late is more than enough reason to hand the keys to the bond portfolio over to a pro. TAGG essentially does all of that in a dynamic investment vehicle of an ETF.
TAGG seeks to outperform the Bloomberg U.S. Aggregate Bond Index. The index is broadly diversified, containing a mix of investment-grade, fixed-income instruments with varying maturity dates.
Furthermore, for the cost-conscious, TAGG hits the spot. The expense ratio comes at a minute 0.08%.
For more news, information, and strategy, visit the Active ETF Channel.