Interest rates have dropped, and with that cut comes the prospect of a shifting fixed income outlook. Investors may be seeking more yield, but the question, of course, is where to find it. American Century Investments Vice President, Senior Portfolio Manager, and Director of Corporate Credit Research, Jason Greenblath, recently spoke to the potential within corporate bonds and how active fixed income can get the most out of the category.
See more: The Case for Adding International Small-Caps
Greenblath, who joined the company in 2019, co-leads the Corporate Markets team and is a member of the Global Fixed Income Investment Committee. While spreads are at generational tights, he said, an active fixed income approach can still find significant opportunities therein.
“When you look under the surface, there’s still a lot of idea generation that can occur,” Greenblath said.
“If you think about the investment grade universe [with]8000 bonds, nearly 800 borrowers. It’s not the S&P 500 … where you can pick and choose 500 companies, right?” he added. “There’s almost 800 companies with ten times as many bonds.”
Getting Yield in 2025
Themes within that long list of bonds can excite, Greenblath explained. For example, he and his colleagues are looking closely at short maturity, BB-rated high yield bonds. He and his team can take a position in an outstanding bond issue of a particular firm and work with both the borrowers and underwriters to refinance the debt therein.
“It’s very targeted. We’re making sure that we have a solid understanding of the fundamentals. We’re taking advantage of smaller bonds that are outstanding,” he said. “The yields on those double Bs, when you run them to a shorter takeout, meaning that they typically come out in advanced maturity… They’re mid single digits, six plus percent, and in a lot of cases, much more attractive than buying the index at four and three quarters percent.”
“I think when you look at our portfolio, when you look at KORP in particular, we’re only going to run it with 200 to 300 line items,” he added. “(Compared to) the index at 8000, we’re much more concentrated in our ideas and our themes.”
Corporate Bond Investing in KORP
Greenblath refers to the American Century Diversified Corporate Bond ETF (KORP). KORP charges a 29 basis point fee for its services. The ETF actively invests in corporate bonds, with the aim of offering both yield and income.
“Investors do want total return, but they also want income, and the way that you capture that is through newer vintage bonds that weren’t issued during the pandemic when rates were at zero and coupons were at 1%, 2%, 3%,” Greenblath said.
“[We’re] getting coupons now that are issued at 5%, 6%, 7% [that]are very attractive, and they do provide that income,” he added. “And you don’t have to go too far out…the maturity curve, to get that kind of income.”
In terms of scrutinizing investments, then, how does KORP look to set itself apart? Per Greenblath, the active corporate bond ETF can adapt to the market and offer deep scrutiny of potential investments, taking advantage when the time is right. It doesn’t just mean investing in big names, but also rising stars, he noted.
“The top 10, top 20 borrowers like AT&T (T), Verizon (VZ), JP Morgan (JPM), we’ll own those from time to time,” Greenblath said. “But only when there’s an event attached to them where we think that spreads are going to tighten, that the company is going to tender for bonds at a premium for a specific reason. We’ve had numerous examples of that throughout this year, and I think that that will continue.”
“So the reason why we like KORP so much is because it can take advantage of those themes…that the index is just sort of capturing the beta of the market,” he added.
Looking Ahead
As for the role an ETF like KORP can play in portfolios, Greenblath suggested the fund could potentially play a core role for investors. The Bloomberg Aggregate Bond Index, or the Agg, provides some corporate exposure, but the majority of its investments include U.S. Treasuries and other government debt types. KORP’s active approach to corporate bonds, by contrast, provides “similar interest rate risk,” he said, with a concentrated corporate bond approach.
Looking ahead, an active corporate bond ETF like KORP may, then, be worth considering. For those looking for that additional yield as an uncertain end to 2025 looms, the active corporate bond ETF may intrigue.
For more news, information, and strategy, visit the Core Strategies Content Hub.
