It’s fair to say that it’s been an up and down year for the old 60/40 portfolio. But investors may be buoyed by an uptick in flows for corporate bonds over the last month. With $3.6 billion into the corporate bond ETF category over one month, totaling about half of the $6.3 billion in YTD flows, investors may want to keep track of a corporate bond ETF like the American Century Diversified Corporate Bond ETF (KORP).
While there are some concerns that rates may make corporate bonds too risky, hedge funds are diving in for what they see as bond prices that have fallen too far overall based on those risks. That may explain the mentality behind the recent uptick in flows, as well. In a difficult year for bonds in particular, fund managers recently have positioned themselves to win investors back into bonds for active funds.
KORP is actively managed and looks to maintain a duration of five to seven years. The ETF invests mostly in investment grade debt, with a significant amount of its portfolio spread out also into riskier, junk-rated debt. Its diversified approach to its debt securities allows it the chance to return some higher yields, which could be an interesting play in such a volatile inflationary rising-rate environment.
For those investors looking for some dividends, they can find them in KORP as well. KORP currently offers an annual dividend yield of 3.05%, beating the ETF Database Category Average of 1.8%. KORP itself has picked up $24.4 million over one month in net inflows, returning 3% over one month compared to -3.1% over three months.
KORP currently weights the U.S. Dollar as its largest holding at 2.8%, followed by bonds from Verizon (VZ) and HSBC Holdings (HSBC) at 1.3% each taking the second and third positions.
Advisors and investors alike are looking for bonds in a volatile year for the whole market, from the recently-chaotic crypto space to the inflation and geopolitical risks that still abound and look to continue into 2023. Those investors may want to follow a corporate bond ETF like KORP in the coming weeks should the flows upswing for corporate bonds persist and a possible recession fail to materialize.
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