Investors can take a more defensive approach with bond exchange traded funds as U.S. stock markets continue to swing amid Covid-19 Omicron and inflation concerns.
Inflation was the main sticking point on Tuesday after data from the Labor Department revealed the producer price index for final demand for the 12 months ended November jumped 9.6%, its most significant gain since November 2010 and followed by an 8.8% increase in October, Reuters reports.
Meanwhile, the quickly spreading Omicron coronavirus variant also weighed on risk sentiment.
“COVID plus inflation is the Grinch that stole Christmas,” Jake Dollarhide, chief executive officer at Longbow Asset Management, told Reuters. “I don’t underestimate the fact that there are some big Nasdaq names giving up some of their big gains. When the leaders sell off, it’s not a good sign.”
Looking ahead, the Federal Reserve is expected to end its two-day policy meeting. Many anticipate the Fed to signal a faster tapering of its supportive post-pandemic asset purchases, along with a potentially quicker start to interest rate hikes to contain the rapid prices increases.
“I would say this meeting is when we start to get some clarity on how they’re (the Fed) going to address this idea of inflation that has remained elevated and most likely will remain an issue going into next year,” David Keller, chief market strategist at StockCharts.com, told Reuters.
The Avantis Short-Term Fixed Income ETF (AVSF) also invests primarily in investment-grade quality debt obligations from a diverse group of U.S. and non-U.S. issuers with a shorter maturity.
The actively managed American Century Diversified Corporate Bond ETF (NYSEArca: KORP) invests in U.S. dollar-denominated corporate debt securities issued by the U.S. and foreign entities but may also hold securities issued by supranational entities. Up to 35% of the fund’s net assets may be invested in high-yield securities or junk bonds. The fund may also invest in derivative instruments such as futures contracts and swap agreements. The weighted average duration of the fund’s portfolio is expected to be between three and seven years.
Additionally, the actively managed American Century Multisector Income ETF (MUSI) is designed for investors pursuing consistent income in a tax-efficient ETF vehicle. The team targets attractive yield throughout the market cycle while offering investors access to a diverse opportunity set of securities, including investment-grade corporates, high-yield corporates, emerging market debt, and securitized bonds.
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