Consumers looking to borrow cheap money have to like the low rates in today’s environment, but for the fixed income investor, not so much. However, just because yields are at record lows, it doesn’t mean that investors should avoid bonds completely.
Inflation can be a bond investor’s worst enemy as the prices of goods or services rises, it eats into their fixed income return. However, even with the government stimulus packages and the Federal Reserve pumping money into the economy with asset purchases, market experts don’t foresee this playing out in favor of inflation.
“It’s hard to imagine that happening with demand being so weak, and unemployment so high, and people’s incomes being hit,” said Kathy Jones, chief fixed-income strategist for the Schwab Center for Financial Research. “I’m in the camp that this is, certainly, for the time being, a deflationary scenario. We have a big hole that’s opened. You can’t really get inflation until you fill it up [with money], and then you put more on top. I don’t think we’re anywhere close to having filled it up, let alone topping it off too high.”
So where can investors look to diversify their portfolios with bond exposure? Nowadays, corporate bonds are where to look.
“In the corporate bond market, you’re going to get, with higher-rated bonds, anywhere from 2% up to 3% depending on the bond. That’s not the end of the world. It’s not fantastic, and it’s not terrible,” Jones said.
With the Federal Reserve stepping in to purchase corporate bonds to help keep the economy afloat, one ETF to consider is the Goldman Sachs Access Investment Grade Corporate Bond ETF (GIGB). GIGB seeks to provide investment results that closely correspond to the performance of the FTSE Goldman Sachs Investment Grade Corporate Bond Index.
The fund seeks to achieve its investment objective by investing at least 80% of its assets (exclusive of collateral held from securities lending) in securities included in its underlying index. The index is a rules-based index that is designed to measure the performance of investment grade, corporate bonds denominated in U.S. dollars that meet certain liquidity and fundamental screening criteria.
A High Yield Bond ETF Option
For a high yield option to squeeze out that extra yield albeit more risk, take a look at the Goldman Sachs Access High Yield Corporate Bond ETF (GHYB). GHYB seeks to provide investment results that closely correspond, before fees and expenses, to the performance of the FTSE Goldman Sachs High Yield Corporate Bond Index.
The fund seeks to achieve its investment objective by investing at least 80% of its assets (exclusive of collateral held from securities lending) in securities included in its underlying index. The index is a rules-based index that is designed to measure the performance of high yield corporate bonds denominated in U.S. dollars that meet certain liquidity and fundamental screening criteria.
For more market trends, visit ETF Trends.
