Bond ETFs fell across the board in 2021, but could they be due for a turnaround this year? Tom Lydon of ETF Trends and John Davi of Astoria Portfolio Advisors joined CNBC’s Bob Pisani on “ETF Edge” to discuss this possible year of the bond, a fund that may be just right for this, and more.
As far as what’s going on in the bond ETF universe, whether having to do with the search for high yield or something else to consider, Lydon notes how many do not remember what it’s like to invest in fixed income during rising interest rates. “It’s just not good for a fixed income portfolio,” he adds.
Lydon continues by noting how he’s speaking with advisors constantly about how they are moving their 60/40 strategies to 70/30 or even 80/20. What’s happening is that money is leaving Barclay’s Agg or strategy and doing one of two things – going over to the equity side and looking for dividend strategies or going to short duration active ETF strategies or cash.
“We’ve got a record $7 trillion in money market funds and $15 trillion sitting in passbook accounts at banks. It’s scary because people are concerned about what rising rates do,” Lydon notes.
On the other side of the barbell, investors and advisors are looking at options overlay strategies. There are funds such as NUSI or the JPMorgan Equity Premium Income ETF (JEPI) that add to this. They are a great way to get added income while having exposure to equities, which Lydon believes will become a more popular route for 2022.
The Astoria Perspective
In relation to this topic, Davi’s thoughts on the topic connect to the recent launch of the AXS Astoria Inflation Sensitive ETF (PPI). For the portfolios Astoria deals with, they are buying into areas such as banks, industrials, energy, commodities, agriculture, and more. Seeing how crowded it was all becoming, having an ETF that provides a one ticker solution that provides broad market exposure to cyclical stocks, which benefit from rising inflation, and physical commodities, equities, and tips.
“That’s what PPI does,” David explains. “It has four segments – cyclicals, commodity equities, commodities, and tips.”
The idea is to embrace this approach and look for the strategy that most benefits. PPI has four sectors in mind – industrials, energy, materials, and banks. Those sectors have historically had the most sensitivity to rising inflation. This should be an ETF to benefit from based on how the market is looking so far.
Looking closer at tips and the concern over how beneficial that may be, Lydon points out how it does serve as a safety component. “There’s a huge void of education on inflation and what it can do to client portfolios. If you look at commodities in general, up until the last 12 months, it’s been an unloved area. Now, by being able to take those areas of the market that do well during times of inflation, it doesn’t have to be scary. You can lean into it, embrace it, and do that by picking off certain sectors of the market and adding it to the portfolio.”
Lydon adds how that’s what’s essentially been done over at Astoria by wrapping all of these areas up into PPI, making it easier for many investors that could use this sort of concept that embraces a lot and simplifies the process.
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