Written by David Fabian, March 07th, 2017
Rising interest rates are making many bond fund investors nervous about the prospects for weakening future returns and unstable risk dynamics. This fear is putting some fuel behind ETF strategies that short Treasuries or sectors such as bank loans that have historically performed well in a rising rate environment.
The PowerShares Bank Loan Portfolio (BKLN), which invests in a basket of floating rate notes and senior loans, has accumulated more than $2.4 billion since the U.S. election. That confidence has so far been rewarded with a steadily rising price trend versus the volatility that has pervaded most aggregate bond benchmarks.
Read the complete article at NASDAQ.com
Written by David Fabian, February 17th, 2017
Love is in the air this Valentines week and many income investors are smitten with the returns of their high yield investments. The steady march higher in assets like junk bonds, preferred stocks, emerging market debt, and even leveraged closed-end funds has remunerated shareholders for their faith.
The poster child of this strength may well be the iShares iBoxx $ High Yield Corporate Bond ETF (HYG). This well-known fund, which invests in a passive index of high yield U.S. corporate debt, has gained more than 22% over the last year. That jump includes both price gains and income distribution over a 52-week period. It also bests every corner of the U.S. fixed-income sector map by a wide margin. Read more
Written by David Fabian, December 11th, 2016
Income investors are currently facing an uptick of concern over bond holdings that is reminiscent of the 2013 taper tantrum. While it was no more than a few years ago, many are quick to forget the terror that resulted from a sharp rise in Treasury yields and concomitant fall in bond prices. I can also starkly remember just how wrong 99% of economists were on predicting the future direction of interest rates in 2014 and beyond. Read more
Written by David Fabian, November 22nd, 2016
Most investors purchase bond funds with a degree of interest rate sensitivity. This is by design as they want to experience the off-setting effects of falling interest rates in exchange for capital appreciation of the underlying bond portfolio. It’s a built-in risk mechanism that has been a successful diversification component when paired with stocks and other assets higher up the volatility scale.
Yet, after decades of falling rates, the long-term return expectations of many bond funds have fallen dramatically. There is also growing concern that even a modest rise in Treasury yields will create a significant shift in the risk appetites of bond investors. With so much anxiety surrounding the recent jump in interest rates, now may be a prudent time to explore the menu of bond ETFs with an embedded hedging component.
Written by David Fabian, October 18th, 2016
The first six months of 2016 were characterized by a sharp drop in U.S. interest rates as investors flocked to the safety of Treasury, municipal, and investment grade corporate bonds. This created significant inflows to diversified exchange-traded funds that track these asset classes in an attempt to ride the building wave of momentum. However, as the ship became overloaded to one side, it was only a matter of time before it began to swing back towards a relative state of equilibrium.
One major indicator of this trend, the 10-Year Treasury Note Yield ($TNX), fell to an all-time low of 1.34% near the mid-point of the year. This index has now reversed course and risen to a four-month high near 1.75%.