Will The Bears Be Out in Full Force for Bond ETFs?

Market uncertainty and central bank stimulus to combat the coronavirus pandemic made bond-focused ETFs one of the darlings of the capital markets. However, with economies looking to reopen and hopes of a vaccine underway, the bears maybe out in full force with their eyes on bond ETFs.

“With yields stuck at record lows, the love affair with all things fixed-income appears to be cooling in at least one corner of the market,” a Bloomberg article said. “Investors have wagered more than $1.5 billion against exchange-traded funds tracking bonds in the past week, according to a report from financial analytics firm S3 Partners. Five of the 10 most-shorted ETFs in the period were fixed-income funds, it found.”

One of the funds seeing a marked increase in bearish activity is the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD).

“The $57 billion iShares iBoxx $ Investment Grade Corporate Bond ETF, ticker LQD, saw the second-biggest increase in bearish bets from more than 2,000 funds tracked by S3, with traders newly shorting $544 million worth of shares,” the Bloomberg article added. “The $20 billion iShares 7-10 Year Treasury Bond ETF, ticker IEF, ranked third, with $381 million in fresh shorts.”

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Investors Still Need Bond Exposure

Whether you’re a bear or not, bonds are still an essential part of a portfolio. ETF investors looking for core bond exposure can look to the iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG), which has been the go-to fund for investors.

Fund facts:

  • AGG seeks to track the investment results of the Bloomberg Barclays U.S. Aggregate Bond Index.
  • The index measures the performance of the total U.S. investment-grade bond market.
  • The fund generally invests at least 90% of its net assets in component securities of its underlying index and in investments that have economic characteristics that are substantially identical to the economic characteristics of the component securities of its underlying index.

Another 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.

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