Right now, bond investors have probably noticed that yield spreads are currently in a fairly tight position. Sure, these spreads can benefit investors who prefer investment grade bonds, but high yield strategies may offer less benefits now. At this point, is the credit risk really worth the gains if the difference in yield is becoming more marginal?
The experts at Eaton Vance recently examined this topic during January’s edition of “The BEAT”. In the report, the Eaton Vance team assessed how current credit spreads may push investors away from high yield for now.
“Credit spreads are historically tight and offer little excess return to compensate investors for the risk,” noted Eaton Vance. “Yes, yields are not exceptionally low, but they may not be high enough either.”
With all this in mind, it might be a bit of a tough argument to justify adding high yield exposure at the moment. Instead, traders may instead look to higher quality bonds as the better option in this credit spread.
EVTR Offers the Best of Both Worlds
One particular fund that may offer an interesting solution is the Eaton Vance Total Return Bond ETF (EVTR). EVTR is an actively managed fund that offers an Eaton Vance take on a core plus bond strategy.
The bulk of EVTR’s portfolio rests in higher-quality bonds ranging from triple-B’s to triple-A’s. These bonds can provide consistent yield while mitigating the risk of default from high yield options.
However, EVTR still comes with a more tactical selection of high yield bonds. Even if credit spreads aren’t rising in favor of high yield, these bonds still offer valuable diversification benefits.
As an additional perk, EVTR’s average portfolio duration currently sits at a nice intermediate position. As of November 30th, 2024, the fund’s effective duration is 5.73 years.
This duration offers a great middle ground between shorter and longer duration funds. EVTR faces less reinvestment risk than shorter funds, while mitigating some of the interest rate risks that longer duration funds often face.
For more news, information, and analysis visit The ETF Yield Channel.