Amid considerable carnage across the bond market this year, fixed income investors are understandably frustrated, and some are confused about what their next moves should be. That’s a relevant point to ponder, particularly when considering the surprisingly large losses some bond funds are saddled with this year. As a result of those losses, many investors are faced with a decision of holding on and hoping for better things or cutting bait and moving into a different strategy.
Market participants seeking elevated, high-quality income by way of corporate bonds may want to consider exchange traded funds such as the SPDR Bloomberg SASB Corporate Bond ESG Select ETF (RBND). With year-end right around the corner, now is an ideal time for advisors and investors to consider tax loss harvesting, and with more market participants searching for bond funds with environmental, social, and governance (ESG) virtues, RBND could be an ideal tax loss harvesting consideration.
“100% of bond ETFs are trading at a loss in five of 11 fixed income segments. Though average bond ETF returns are not as poor as equity returns, in eight of 11 bond sectors returns are worse than -9%,” noted Matthew Bartolini, head of SPDR Americas Research. “In fact, 67% of all ETFs are trading below their average overall historical price dating back to their inception. This covers $2.3 trillion in assets.”
Indeed, this sounds ominous. However, RBND offers points of allure, including sturdy income and stout credit quality — the latter of which is important as more investors grapple with the specter of a recession potentially arriving next year.
RBND has points in its favor as a tax loss harvesting option. Those include the staggering loss in the world of mutual funds. Many actively managed mutual funds will subject investors to capital gains distributions this year, many those investors will be on the hook for taxes on top of miserable performances. Due to the creation/redemption process used by ETFs, many passive ETFs don’t distribute capital gains. RBND is a passive, index-based fund.
“Amid elevated cross-asset volatility, the losses continue to pile up — and not just among ETF strategies. Today, 96% of all mutual funds are trading at a loss, covering $16.7 trillion of assets,” added Bartolini.
RBND follows the Bloomberg SASB® US Corporate ESG Ex-Controversies Select Index and charges a modest 0.12% per year, or $12 on a $10,000 stake. That’s favorable in the ESG bond space.
For more news, information, and strategy, visit the ESG Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.