At Exchange 2023, Asad Jamil, regional vice president, ETF specialist at Capital Group, said that after 2022 “was the first time in 45 years in which we saw stocks and bonds both decline in tandem,” and in 2023, “the conversation is all about risk.”
“Looking forward to 2023, I think one of the things investors were hoping for was more clarity,” Jamil said. “Unfortunately, we haven’t necessarily seen that so far.”
Capital Group’s ETF specialist told NYSE’s Judy Shaw for “ETF Leaders, Powered by the New York Stock Exchange,” that on the one hand, “yield curves continue to be inverted, flashing signs of recession.” But “on the other hand, looking at credit markets,” Jamil explained “we see spreads continue to be rather tight, signaling to us recession is not necessarily on the horizon.”
According to Jamil, the good news is that “for those investors looking to manage risk in their portfolios… it’s a great time to be back in bonds,” since, looking at yields, investors are “actually getting paid to own fixed income.”
“Fixed income is actually earning its last name again,” he said.
Jamil added that, when looking at some of the diversification benefits that fixed income provides now that yields are higher, even if the Federal Reserve continues to raise interest rates, “the fact that we are starting so much higher should give investors some cushion and provide investors with a greater positive total return.”
Last year, Capital Group launched nine active core ETFs “designed to live at the heart of investor portfolios.” Tamil cited one in particular, the Capital Group Short Duration Income ETF (CGSD), as one that’s generating “a lot of conversations right now.”
“We feel it has a very compelling value prop given the current environment,” Jamil said. “We feel it’s doing three things: diversification, quality, and attractive income with low interest rate risk.”
Capital Group is investing in “a lot of the higher-quality” fixed income assets like investment-grade corporate debt, securitized debt, and mortgage-backed securities, which Jamil feels “should lead to a smoother ride and potentially greater outcome for investors.”
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