The bond markets have been following stocks as downward selling pressure ensues thanks to investor fears of rampant inflation. If investors are feeling wary of the bond markets, getting active management could help ease the pain.
Employing an active management style means that investors could get dynamic exposure to the markets, allowing managers to get in and out of positions to adapt to changing market conditions. Active management is inherent in exchange traded funds (ETFs) like the Invesco Total Return Bond ETF (GTO).
As mentioned, GTO is an actively managed intermediate-term bond ETF for investors seeking monthly income and total return opportunities. The fund will invest at least 80% of its total assets in fixed income instruments of varying maturities and of any credit quality.
In terms of credit risk, the majority of debt is rated AAA (once again, as of the fund’s holdings on April 29). As the fund description says, the focus is on intermediate-term debt with the majority of maturities ranging from one to 10 years.
Intermediate-term debt means that investors won’t be exposed to long-term debt, which mitigates credit risk. At the same time, more yield can be obtained with intermediate-term debt than with short-term debt; the fund was generating a 30-day yield of 3.69% as of April 29.
Embracing the Pain
Despite the current weakness in the bond markets, now could be the time to get in, according to market strategists. Inverting yield curves have already flashed signs that an impending recession could be forthcoming, meaning that bonds could present the ideal safe haven amid market weakness.
“While buying bonds today may still have some ‘pain’ in them, we are likely closer to a significant buying opportunity than not,” said Lance Roberts, the chief investment strategist of RIA Advisors. “More important, if we are correct, the coming bull market in bonds will likely outperform stocks and inflation-related trades over the next 12-months.”
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