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Bond ETFs Strengthen as Investors Reduce Risk Exposure

Bond exchange traded funds strengthened as investors trimmed risk and turned to safer bets with the U.S. equities market continuing their pullback.

Wall Street main indexes retreated with the Nasdaq set for its fourth consecutive day of declines. Netflix was a major drag on the benchmark after missing market forecasts for new subscribers for the end of 2021, and the online streamer provided a weak outlook for early 2022, Reuters reports.

“The pandemic winners are under pressure and that will likely continue. If everybody already has Netflix, it’s hard to improve subscriber growth,” John Lynch, chief investment officer for Comerica Wealth Management, told Reuters. “Perhaps investors’ expectations were a little stretched.”

Investors are still anticipating the Federal Reserve to hike interest rates several times this year to control elevated inflationary pressures, which has pressured stocks, notably the growth style and technology companies.

“The Fed is saying ‘OK, zero interest rates don’t make sense here, so we’re going to move back toward something more reasonable,’” Jonathan Golub, chief U.S. equity strategist and head of quantitative research at Credit Suisse, told the Wall Street Journal. “They’re not really hikes, but signals that a big rate of change is coming.”

The central bank’s policy meeting next week will provide greater clarity on its monetary policy ahead.

“While the selling seems to have slowed for now, the prospect of a week filled with big earnings and a crucial Fed meeting means there might not be a rush to buy the dip just yet,” Chris Beauchamp, chief market analyst at online trading platform IG, told Reuters.

Investors looking to strengthen their fixed income portfolios can consider the Avantis Core Fixed Income ETF (AVIG), which invests in a broad set of debt obligations across sectors, maturities, and issuers. AVIG pursues the benefits associated with indexing, such as diversification and transparency of exposures. However, the fund also has the ability to add value by making investment decisions using information embedded in current yields.

The Avantis Short-Term Fixed Income ETF (AVSF) also invests primarily in investment-grade quality debt obligations from a diverse group of U.S. and non-U.S. issuers with shorter maturities.

The actively managed American Century Diversified Corporate Bond ETF (NYSEArca: KORP) invests in U.S. dollar-denominated corporate debt securities issued by U.S. and foreign entities, but may also hold securities issued by supranational entities. Up to 35% of the fund’s net assets may be invested in high-yield securities or junk bonds. The fund may also invest in derivative instruments such as futures contracts and swap agreements. The weighted average duration of the fund’s portfolio is expected to be between three and seven years.

Additionally, the actively managed American Century Multisector Income ETF (MUSI) is designed for investors pursuing consistent income in a tax-efficient ETF vehicle. The team targets attractive yield throughout the market cycle while offering investors access to a diverse opportunity set of securities, including investment-grade corporates, high-yield corporates, emerging market debt, and securitized bonds.

For more news, information, and strategy, visit the Core Strategies Channel.

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