One ETF to Consider as Pension Plans Pour Money Into Bonds

Rising COVID-19 cases amid the highly contagious Omicron variant are pushing institutional investors like pension plans into bonds.

The risk-off sentiment comes just as the Federal Reserve is winding down its bond purchases. Last year, the Fed stepped in to shore up the bond market as the pandemic sparked fears of credit defaults.

Now that the Fed is slowly shuttering its stimulus measures, someone has to buy the mass of bonds in the debt market. It appears that pension plans are flush with cash and ready to open their wallets to scoop these bonds up.

“America’s largest corporate pension plans are pouring hundreds of billions of dollars into the bond market and out of riskier assets like stocks after soaring equity prices helped plug their funding gaps for the first time in over a decade,” a Financial Times article says.

“Industry experts estimate that as much as 10 per cent of assets in the $3tn corporate pension industry have been transferred to less risky assets since the start of the coronavirus pandemic due to a recent surge in the financial health of pension plans,” the article adds. “Their ‘insatiable demand’ is helping to prop up prices for high-quality debt.”

An Actively Managed Option to Consider

Bond investors looking to flex and move with the changing debt market can do so with active management. Rather than stay in a fixed spot, active management can follow where the money is going (in this case, pension plans) by using funds like the FlexShares Core Select Bond Fund (BNDC).

Using its active management style, BNDC seeks total return and preservation of capital. The fund invests at least 80% of its net assets in U.S. dollar-denominated investment-grade fixed income securities either directly or indirectly through exchange traded funds and other registered investment companies.

“The ETF is actively managed by institutional fixed-income managers at Northern Trust, the adviser of the FlexShares funds,” a FlexShares Fund Focus notes. “These managers aim to build a diversified bond portfolio through existing ETFs, using both the FlexShares ETF family and ETFs from other providers, to provide exposure across sectors of the fixed income markets.”

“For example, the Fund captures exposure to the major fixed-income asset classes such as Treasuries, corporate bonds, and mortgage-backed securities (MBS), while also choosing ETFs that offer potentially more refined, value-added exposures to a variety of products such as TIPS,” the Fund Focus adds.

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