As Large Investors Head Back Into Bonds, Consider These 2 Active ETFs

Investors are diving into bonds once again after a forgettable year for the fixed income market. Getting active exposure via exchange-traded funds (ETFs) could help ease any anxiety for unknowns in 2023.

The overall expectation is that the U.S. Federal Reserve will start scaling back its rate hikes in the new year. Additionally, a potential recession could spur a demand for safe haven assets again; this creates gusty tailwinds for a bond comeback and big investors are creating a healthy appetite for bonds again.

“Big investors are wading back into the bond market after this year’s historic sell-off, with fund managers favouring debt relative to other asset classes for the first time since the wake of the 2008 financial crisis,” a Financial Times article said. “A broad gauge of fixed-income assets across the globe has lost 15 per cent this year as high inflation spurred interest rate rises in developed economies, by far the weakest performance in data stretching back to 1990.”

This renewed taste for bonds is seeing portfolios skew towards more fixed income allocation.

“Investors are overweight bonds relative to other asset classes in their portfolios for the first time since 2009, according to the December edition of Bank of America’s monthly survey of fund managers who collectively oversee more than $800bn of assets,” the FT article added.

2 Options From American Century

Given this, there’s still no telling what 2023 will bring. As such, to protect against the downside, active management is an option — it gives investors dynamic exposure to an active strategy that can flex with the markets whether there’s upside or downside.

Essentially, bond holdings are put into the hands of seasoned market professionals. For corporate bond exposure, consider the American Century Diversified Corporate Bond ETF (KORP).

KORP offers yield while also adding diversification in holdings of mostly investment-grade quality. Per its fund description, it seeks current income by emphasizing investment-grade debt while dynamically allocating a portion of the portfolio to high yield.

For high yield exposure for more income opportunities, then consider the American Century Select High Yield ETF (AHYB). The fund actively invests primarily in BB- and B-rated debt issues in pursuit of high current income and risk-adjusted returns.

The fund itself is subadvised by a veteran team at Nomura Corporate Research and Asset Management, a firm that has specialized in the high yield market since its founding in 1991. According to the fund’s product website, the managers apply a research-intensive process that seeks to identify companies that they believe can:

  • Carry debt loads across market cycles
  • Generate sustainable cash flows
  • Decrease leverage on their balance sheets in pursuit of higher ratings

For more news, information, and analysis, visit the Core Strategies Channel.