Fixed income investors looking at corporate bonds may go beyond the rudimentary fundamental analysis and look at factors like labor shortages or supply-chain disruptions.
This is particularly the case in the current market environment where the pandemic has shaken the foundations of corporate America. Labor shortages and supply-chain disruptions can be solid indicators for whether or not one should invest in a company’s bonds.
“Labor shortages and supply-chain disruptions have become make-or-break factors for some investors weighing bets on corporate debt,” a Wall Street Journal article noted. “Tom Murphy, portfolio manager and head of global investment-grade credit at Columbia Threadneedle, said the asset manager is placing companies in two buckets: those that can offset increased wages, bottlenecks and shortages with higher prices, and those that can’t without losing business.”
In essence, Murphy avoids companies where their core business operations are related to packaged goods or department store retail.
“There is a labor shortage and companies are now paying more for wages. So we think about investing from a margin standpoint as opposed to ‘Is there inflation, yes or no,’” he said. “The wage piece is a big part of it.”
Getting Aggregate Corporate Bond Exposure
Fixed income investors who may not have the time or the patience to navigate the vast universe of corporate bonds can opt for an aggregate solution. In this case, Vanguard offers the Vanguard Total Corporate Bond ETF ETF Shares (VTC).
VTC seeks to track the performance of a broad, market-weighted corporate bond index. The fund is a fund of funds, and it employs an indexing investment approach designed to track the performance of the Bloomberg U.S. Corporate Bond Index, which measures the investment-grade, fixed-rate, taxable corporate bond market.
The index includes U.S. dollar-denominated securities that are publicly issued by industrial, utility, and financial issuers. The fund comes with a low expense ratio of 0.05%.
VTC offers:
- Performance tied to the Bloomberg U.S. Corporate Bond Index
- Broad, diversified exposure to the investment-grade U.S. corporate bond market
- A unique ETF of ETFs structure
- An intermediate-duration portfolio, with exposure to short-, intermediate-, and long-term maturities
- Current income with high credit quality
For more news, information, and strategy, visit the Fixed Income Channel.