High-Quality High Yield Provides Investors With Ample Opportunity

Investors are awaiting the Federal Reserve’s decision on how it will move forward with interest rate hikes. But despite some new estimates of how the U.S. central bank will proceed, analysts and industry observers agree that the Fed will continue to raise rates to combat inflation until it reaches its target of 2%.

This means that market volatility is likely to persist. But with markets having absorbed a considerable amount of rate changes over the year, fixed income investors can be very differently positioned in 2023 than they were this year, according to BondBloxx Investment Management co-founder Joanna Gallegos.

“No matter what the Fed does or says next week… there is an incredible amount of opportunity in the bond market that hasn’t existed for decades,” Gallegos said on CNBC’s “Market Alert.”

As income investors reallocate more to fixed income and become more comfortable with riskier assets, high-quality high yield is worth considering. In particular, Gallegos said that single-Bs are “the Goldilocks of high yield,” since they’re “less rate-sensitive than double-Bs and … less idiosyncratic risk than triple-Cs.”

Gallegos noted that “there are spots to enter into the risk markets” across different sectors, such as high yield energy and consumer industrials, both of which “have a lot of strengths in their balance sheets.”

For investors wanting targeted high yield exposure, BondBloxx has seven industry sector-specific high yield bond ETFs, including the BondBloxx US High Yield Bond Energy Sector ETF (NYSE Arca: XHYE), the BondBloxx US High Yield Bond Industrial Sector ETF (NYSE Arca: XHYI), and the BondBloxx US High Yield Bond Consumer Cyclicals Sector ETF (NYSE Arca: XHYC).

Launched in October of 2021 to provide precision ETF exposure for fixed income investors, Gallegos co-founded BondBloxx with ETF industry leaders Leland Clemons, Tony Kelly, Mark Miller, Brian O’Donnell, and Elya Schwartzman. The team has collectively built and launched over 350 ETFs at firms including BlackRock, JPMorgan, State Street, Northern Trust, and HSBC.

Since February, BondBloxx has launched 19 fixed income ETFs, including seven industry sector-specific high yield bond ETFs, three ratings-specific high yield bond ETFseight target-duration U.S. Treasury ETFs, and one short-duration emerging market bond ETF.

“BondBloxx has continued to launch innovative products since its founding and has expanded the ETF universe with targeted products where there is white space,” said Todd Rosenbluth, head of research at VettaFi. “Their broad range of fixed income funds makes them a firm to watch as the asset category grows.”

For more news, information, and analysis, visit the Institutional Income Strategies Channel.