With a month and a half of 2023 in the books, it’s clear that fixed income is front and center. Navigating the Fed’s plans for rates this year was a key theme of the Exchange conference in Miami last week, and with the possibility of further hikes and added yields still in the cards, investors would do well to get their FI sleeves ready. One strategy worth considering may a low-fee active bond ETF like the Franklin International Aggregate Bond ETF (FLIA).
Where to look right now in bonds? A well-intentioned advisor would certainly make sure to check some of the more risk-on areas in bonds right now, given the call to hunt for yields, but the real takeaway from the start of the year has been that even investment-grade offerings, Treasuries, and corporate debt are putting up yields that merit attention. The long-term bond ETF category on YCharts has returned 4% YTD, while corporate bonds have returned 2.5% in that same time.
It’s also been a good start to the year in municipal bonds, for which there is a strong case to consider their potential. Cities and towns are relatively flush with cash right now, limiting their need to bond out new offerings which will drop supply and perhaps boost yields.
Taken together, that builds the case for a low-fee active bond ETF like FLIA. The active strategy from Franklin Templeton charges a 25 basis point fee for its aggregate approach, investing in investment-grade fixed or floating-rate bonds issued by governments, government agencies, or corporate issuers outside the U.S.
FLIA has added $46 million in one-month net inflows, with a particular spike of $39 million over the last five days on net. The ETF has also outperformed its ETF Database category average on a YTD basis, with its 1.74% return comparing well to the average’s 0.7% in that time.
Fixed income offers significant opportunity to start this year and may well for the rest of the year, too. The post-2008 financial crisis rate regime seems to have ended, and in this new moment, keeping watch on fixed income may be a new top priority for advisors. As such, an ETF like FLIA and its active ability to swap between corporate and government bonds with fixed or floating rates is one to keep on advisor shortlists in the weeks and months ahead.
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