As Investors Dive Back Into Corporate Bonds, Here's an Active Option

The bond market could be seeing upside ahead, but wary investors might not be ready to simply jump back into the market, especially with respect to riskier corporate bonds. That said, an active management approach could help quell some of the fear.

It’s an opportune time for corporate bond investors if the positive momentum can hold up. As investors are well aware, the bond market has been following the stock market downward amid inflation fears and rising interest rates.

However, the tide could be turning as more investors feel more apt to dip their toes back into the bond market waters. Returns are also reflecting as such, according to a Reuters article.

“U.S. corporate bonds posted their first positive monthly return this year in May as easing inflation jitters alleviated pressure on rates and the possibility of a less hawkish Federal Reserve mitigated concerns over companies’ ability to repay their debt,” said the article, which was published on June 1.

As mentioned, investors are responding with renewed vigor as their taste for corporate bonds begins to sweeten. Bargain hunters in particular are eyeing the corporate bond market after the debt space has fallen to levels that look attractive in terms of value.

“Investors are going bargain hunting for beaten-down corporate bonds,” a Wall Street Journal article said.

“That is a reversal from earlier in the year, when investors sold off even the highest-quality debt,” the article added. “The turnaround highlights the tensions pressuring financial markets. In recent weeks, investors have grown more confident about the Federal Reserve’s path for raising interest rates to wrangle inflation—and more worried that, as a result, growth has begun to slow.”

An Active Corporate Bond ETF Option

Investors who are still wary of diving back into bonds, corporate bonds in particular, can opt for active management. This allows for more dynamic exposure that can shift accordingly when the corporate bond market changes, for better or worse, via an ETF such as the American Century Diversified Corporate Bond ETF (KORP).

The fund seeks current income by emphasizing investment-grade debt while dynamically allocating a portion of the portfolio to high yield. Per its product website, KORP creates a systematically managed portfolio that integrates fundamental and quantitative expertise that:

    • Adjusts investment-grade and high yield components to balance interest rate and credit risk
    • Screens individual credits to seek those with sound fundamentals, reduced default risk, attractive valuations, and liquidity
    • Adjusts industry and duration exposures as risks and opportunities emerge

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