October’s market rally was kind to more than just equities, as several bond categories rode the wave to strong net inflows. With yields rising and economic indicators not as severe as markets had previously feared, now may be a good time to give corporate bonds a shot via an active corporate bond ETF like the Franklin Investment Grade Corporate ETF (FLCO).
Investors had rightly put off bonds when yields were much lower at the start of the year, driving significant attention toward alternatives strategies within the ETF wrapper and in other vehicles. With October’s mini rally still yet to be fully deflated – and this week’s CPI print could be a big obstacle – investors may want to turn back to stronger yields via bonds to help balance stock-heavy portfolios.
Corporate bond ETFs have certainly been popular with flows over the last month, taking in $3.6 billion in one-month flows compared to $6.3 billion in YTD flows, more than half of the latter total, according to YCharts data. That data also indicates a turnaround for returns in the category, though still negative at 2.6% over one month compared to -18.7% YTD.
FLCO is actively managed and able to invest up to 15% of the portfolio in non-U.S. dollar-denominated securities, capping overseas exposure at 40% of exposure. FLCO holds corporate bonds from Verizon (VZ) and Delta Air Lines (DAL) as its top two at 1.6% each, with no single firm having higher than that weight except a debt offering from the Federal Home Loan Bank System at 4.4%.
FLCO took $2.9 million over one month, a positive in a difficult -$244 million in YTD flows for the ETF. It saw a significant turnaround in returns comparing the two periods, with a -1.8% return for one month compared to -20.2% YTD. FLCO charges 35 basis points for its active management, an exciting active option for investors looking for a flexible bond approach.
Markets may have had an optimistic October, but uncertainty still abounds; this week’s CPI print is just one source of ongoing uncertainty as geopolitical risk and the global energy crisis persist. For those investors looking for ballast to their equities, consider an active corporate bond ETF on the upswing.
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