First, it was ETFs and most recently, it was individual bond purchases as the U.S. Federal Reserve looked to shore up the fixed income market. Speaking to the latter, recent disclosures noted that individual debt purchases included companies, such as Walmart and AT&T.
“On June 16, the U.S. central bank began purchasing securities of individual issuers as part of a broad index it created to include companies that were eligible for the program,” a Bloomberg article pointed out. “The disclosures, posted Sunday, showed that of the $207 million of purchases made on the first day of buying, about 21% were of debt issued by firms in the consumer non-cyclical sector, while 15% were of consumer cyclical debt and 10% were of technology debt. Issues rated below investment grade comprised 3.6% of the securities acquired.”
“In a separate disclosure, the New York Fed released the composition of the broad index the central bank is using to conduct the purchases,” the article noted further. “Fed officials have said the goal of the buying is to maintain liquidity in the market for corporate debt so that issuers are able to access capital despite the deep economic downturn created by the pandemic. The index is comprised of almost 800 issuers.”
An Active, Investment-Grade ETF Option
If high yield is too much risk to bear, investors can opt for an investment-grade option like the Principal Investment Grade Corporate Active ETF (IG). IG seeks to provide current income and, as a secondary objective, capital appreciation.
Additionally, the fund is an actively managed ETF that seeks to achieve its investment objective by investing, under normal circumstances, at least 80% of its net assets, plus any borrowings for investment purposes, in investment grade corporate bonds and other fixed income securities at the time of purchase. “Investment grade” securities are rated BBB- or higher by S&P Global Ratings (“S&P Global”) or Baa3 or higher by Moody’s Investors Service, Inc. (“Moody’s”) or, if unrated, of comparable quality in the opinion of those selecting such investments.
Key features of IG:
- Active management: Combines bottom-up independent credit research with top-down strategy, seeking alpha through credit selection, industry rotation, and curve positioning
- A straight forward process: Investment grade exposure, free of derivatives, unrated issues, and large duration bets
- A strategic perspective: Forward looking, iterative process seeks credits exhibiting stable-to-improving credit rating trajectory which may benefit from spread compression and income premiums
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