High output that lives up to its name

The conventional wisdom is that bonds can provide good diversification to an investment portfolio, provided the rates are right. If rates are at the low levels they were at the start of the year, then fixed income securities are a poor diversifier. As bond yields increase, their risk decreases, which improves the ability of fixed income securities to diversify.

And while bond stocks are currently bearish, Barron’s reports that with yields rising, fixed income stocks still offer strong opportunities as portfolio diversifiers. Treasury bills are currently yielding 2.5% to 2.7% across the entire maturity spectrum, from two to 30 years. Investment grade corporate bonds, meanwhile, account for around 4%; preferred shares, 5%; and high yield bonds approaching 6%.

Barron’s added that raising rates to as much as 3% by the end of the year (as the Federal Reserve signaled was considering) could push the economy into recession, thus making stocks a potentially riskier asset.

In February, BondBloxx launched seven high-yield US bond ETFs that provide precise index exposure to the high-yield asset class and allow investors to diversify and manage risk in the industrials sector. The funds are passively managed and track rules-based sub-indices of the ICE BofA US Cash Pay High Yield Constrained Index.

BondBloxx was founded by ETF industry leaders Leland Clemons, Joanna Gallegos, Elya Schwartzman, Mark Miller, Brian O’Donnell and Tony Kelly. The team has collectively built and launched over 350 ETFs in companies including BlackRock, JPMorgan, State Street, Northern Trust and HSBC.

According to the issuer, more and more institutional investors are recognizing the role that fixed-income ETFs can play in their portfolios, even in times of volatility. They can provide short-term liquidity while providing a more efficient way to keep portfolios balanced. Sector ETFs make it possible to add intentional tactical inclinations to their portfolios. They can also improve price discovery, even when transparency is low or the underlying securities are not trading.

BondBloxx co-founder Joanna Gallegos told ETF Trends in January that the firm “focuses on creating precise exposures for institutional investors who want to execute specific investment views and have additional tools to manage risks”.

“There is a deep gap between the size of the bond market and the sophistication of the tools available, like ETFs,” Gallegos explained. “Institutions are looking for products that give them precise exposure, but they’ve really been limited in what they can do since these types of tools are underrepresented in the ETF landscape. Most fixed income products on the market are broad-based.

For more news, insights and strategy, visit the Institutional Income Strategies Channel.

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