ETF Trends CEO Tom Lydon discussed the JPMorgan U.S. Aggregate Bond ETF (JAGG) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.
Prior to the FOMC meeting recently, investors and economists had been anxiously awaiting the announcement by the Fed, hoping that rates will be cut. Markets have been moving higher since June, when Federal Reserve Chairman Powell signaled the Fed would come to the market’s aid if necessary. Normally however, when the Fed starts loosening policy, it does so amid clear-cut signs of economic weakness. While rates are currently steady, the Fed did signal a potential round of cuts in the near future. This means that it might be prudent for investors to look at diversifying their portfolios by considering other forms of capital appreciation such as the bond market.
“There is a lot of conversation about event the possibility of rate cuts as there is concerns about slowing global growth, slowing global earnings. The trade wars have really put a damper on global economies as well. We saw the Fed recently making comments that cuts might be coming. And boy, you know if we get into a situation where rate cuts are happening, that’s really good for the bond market, as we’ll see some appreciation there,” Lydon said.
JAGG invests in a diversified portfolio of high-quality fixed income securities, including corporate bonds, U.S. Treasuries and government and agency securities. It applies a multi-factor credit screening process that seeks exposure to corporate debt issuers with attractive value, quality and momentum characteristics. It realigns duration and sector allocation to reflect the risk profile of the Bloomberg Barclays US Aggregate Bond Index.
“The quality most importantly by using this factor indexing style makes sure that those bonds in the allocation are almost of the best quality out there,” Lydon explained about the fund.
The ETF Trends CEO also expounded the benefits of JAGG relative to it’s benchmark index.
“The other thing is this: the Barclay’s Aggregate Bond Index, which really is the benchmark for most diversified fixed income portfolios, really is not the same as it was 10 years ago. There is a less credit quality, there is a longer duration, so inherently more risk. At the same time, it’s kind of jacked up in government issues, where that may be ok if you’re looking for safety. But if you feel like there is going to be stability in rates, there’s a strong case for looking for high quality corporate bonds, as they tend to offer a better yield during times of stability in the fixed income marketplace. With that in mind, JP Morgan put JAGG together to compete with those that are allocating toward this benchmark of the Barclay’s Agg, and they do it in a very responsible way.”
JAGG has a low expense ratio and YTD performance of nearly 5%, making exploring the ETF something that bond thirsty investors should put on their to do list.
For more podcast episodes featuring Tom Lydon, visit our podcasts category.