Investors are planning to seek opportunities within fixed income if rates continue to rise. According to a recent survey of 120 U.S. institutional investors conducted by CoreData Research, nearly half (47%) of U.S. institutional investors plan to increase their allocation to fixed income if the Fed increases interest rates to around 5% as expected.
Under such a scenario, investment-grade corporate bonds would be the biggest recipient of higher allocations, with 29% of investors planning to add to their allocation.
Many, if not most, investors expect some form of recession in some form as the Federal Reserve continues to raise interest rates. Inflation may be slowing down, but the Fed is unlikely to ease off on rate hikes too quickly, considering the U.S. central bank was seen as doing too little, too late, when inflation started to rise.
So, assuming rate rises are in line with the current consensus, investors intend to add to core fixed income and some other forms of fixed income.
CoreData’s founder and principal Andrew Inwood is quoted in The TRADE as saying that “higher interest rates now offer better income opportunities after a prolonged and frustrating search for yield in the post-financial crisis low-rate environment,” before adding: “The income has finally returned to fixed income.”
See more: “The Limits of Passive Fixed Income Investing”
Taking an Active Approach
For investors seeking yield, it may make sense to pursue an active approach to their fixed income investments. After all, fixed income ETFs almost always have an element of active decision-making.
If passive management is like putting your car on autopilot, then active management is giving the manager the ability to grab the wheel. In addition, active managers with greater resources and greater scope benefit from economies of scale, which can often translate to better returns.
“Active managers have the flexibility to take advantage of market volatility and add to favored positions when prices become more attractive,” said VettaFi’s head of research Todd Rosenbluth.
As part of its lineup of active exchange traded funds, T. Rowe Price offers a suite of actively managed fixed income ETFs, including the T. Rowe Price QM U.S. Bond ETF (TAGG), the T. Rowe Price Total Return ETF (TOTR), the T. Rowe Price Ultra Short-Term Bond ETF (TBUX), the T. Rowe Price U.S. High Yield ETF (THYF), and the T. Rowe Price Floating Rate ETF (TFLR).
T. Rowe Price has been in the investing business for over 80 years, conducting field research firsthand with companies, utilizing risk management, and employing a team of experienced portfolio managers carrying an average of 22 years of experience.
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