Even defensive sectors are slumping. Last week’s market plunge took a toll on normally defensive, lower beta groups, including consumer staples, real estate and utilities. For example, the Utilities Select Sector SPDR (NYSEArca: XLU) lost more than 4%.
Among this year’s most popular fixed income exchange traded funds are low and ultra-short duration fare, but a new survey indicates investors are revisiting bonds with longer-dated maturities. However, with some shelter-from-the-storm plays failing, investors may renew their affinity for longer-dated bonds and exchange traded funds such as the iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT).
TLT, which tracks the ICE U.S. Treasury 20+ Year Bond Index, has an effective duration of almost 17.1 years. TLT could be one market segment that offers investors adequate protection should stocks continue trending lower.
“The TLT 20+ year Treasury bond ETF tracks the prices of bonds with long-term maturities. The ETF’s 50-day moving average, a measure of short-term trend, has been on the upswing since the beginning of December,” according to CNBC.
Time For TLT?
Short-term Treasury yields usually rise along with investor expectations for tighter Fed rate policies while longer-term yields are more sensitive to growth and inflation sentiment. Investors typically monitor the yield curve, or difference between long- and short-term yields, as an indicator for economic growth. The last time short-term rates exceeded long-term yields was before each recession since at least 1975, or something also known as an inverted yield curve.
“I’ve been pounding the table on being long Treasurys,” said Bill Baruch, president of Blue Line Futures, in an interview with CNBC. “I’m looking at the TLT and there may actually be a golden cross down the road where you get the 50-day moving average move out above the 200-day.”
As highlighted by a year-to-date decline of nearly 5%, TLT struggled mightily earlier this year. However, the fund is gaining momentum. TLT is higher by almost 5% this month, extending its fourth-quarter gain to over 3%.
Still, investors appear to need some convincing to embrace TLT. The fund has seen $1.82 billion in fourth-quarter outflows, a total surpassed by just seven other ETFs.
For more trends in fixed income, visit the Fixed Income Channel.