A lot of market mavens are trumpeting the benefits of shifting into value and away from growth in the current market environment, but how can that translate into the fixed income space? One area is investment-grade bond exchange-traded funds (ETFs) that offer quality debt.
The shift to value is already making itself apparent, according to Marko Kolanovic, global head of the macro quantitative and derivatives strategy team at J.P. Morgan.
“Many similar indicators suggest the gap is not sustainable between value, cyclicals, mid and high beta stocks on one side, and momentum, low volatility, and growth on the other side,” wrote Kolanovic. “While manufacturing lags both, we see that in the coming months one could expect manufacturing activity to pick up given the increased monetary stimulus, providing support for the market and value stocks. We think October negotiations will be the key for future performance of equity markets and more broadly the global economy.”
Of course, this all hinges upon trade negotiations going well in October. However, things won’t be so bad even if trade negotiations don’t yield the best result.
“If the October negotiations fail, these moves could be unwound, but given the extreme low positioning and style tilt, we think the downside is limited,” Kolanovic wrote.
Investment Grade Options in the Bond ETF Space
While bonds have been the default safe haven amid the recent volatility in the equities market, it can be daunting to look at all the options, such as government debt and corporate bonds. One way to go about building a proper bond portfolio is to consider the risks first and foremost.
Given the latest market volatility, getting that bond exposure is still a must. Investors looking to gain broad-based exposure to bonds can look at funds like the ProShares S&P 500 Bond ETF (NYSEArca: SPXB). The fund seeks investment results that track the performance of the S&P 500®/MarketAxess Investment Grade Corporate Bond Index, which consists exclusively of investment-grade bonds issued by companies in the S&P 500.
Investment-grade corporate bond-focused fixed-income ETF options include the iShares Intermediate Credit Bond ETF (NASDAQ: CIU), iShares iBoxx $ Investment Grade Corp Bd ETF (NYSEArca: LQD) and Vanguard Interm-Term Corp Bd ETF (NASDAQ: VCIT). Investors looking for broad-based core bond exposure can look to a fund like the iShares Core US Aggregate Bond ETF (NYSEArca: AGG).