With volatility gripping the markets, exchange traded fund investors have turned more risk averse and sought out the relative safety of short-term fixed-income assets.
“People are interested in fixed income this year, and from what we’ve seen across the platform and just in terms of client discussions, advisors are looking about shortening up their duration. So, we’re constantly seeing less flows into last year’s more popular fixed-income categories, like high-yield and corporate bonds, and people looking looking for all sorts of sorts of short-duration, low-duration fixed-income solutions in this environment,” Richard Koerner, Senior Vice President, Sector – ETF Sales Manager, Fidelity Investments, said at the Charles Schwab IMPACT 2018 conference.
For example, the actively managed Fidelity Limited Term Bond ETF (NYSEArca: FLTB) may help investors shift down the yield curve to short-term debt. The ETF invests in investment-grade corporate bonds and other corporate debt securities and repurchase agreements for those securities. The bond fund’s managers will try to achieve a similar overall interest rate risk to the Bloomberg Barclays U.S. Credit Bond Index. FLTB shows a 2.51 year duration and a 3.22% 30-day SEC yield.
Additionally, the the more recently launched Fidelity Low Duration Bond Factor ETF (Cboe: FLDR) tries to reflect the performance of the Fidelity Low Duration Investment Grade Factor Index, which is comprised of U.S. investment grade floating rate notes with less than 5 years maturity and U.S. Treasury notes with 7 to 10 years maturity. The underlying index is designed to optimize the balance of interest rate risk and credit risk so that both returns and risk measures may be improved relative to traditional U.S. investment grade floating rate note indices. FLDR shows a 0.94 duration and a 3.15 30-day SEC yield.
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