Actively managed exchange-traded funds may be better suited than traditional indexing to help investors diversify better in any type of market environment.
In the recent webcast, Navigating the Fixed Income Markets: Market Update and Outlook, Andrew McCormick, Head of Fixed Income at T. Rowe Price, described the current conditions we face with the interest rate cycle starting to shift towards future hikes after a year of Accommodative monetary policies helped bring the economy back from the coronavirus pandemic led to Fall. McCormick argued that while the global stimulus may have peaked, liquidity remains plentiful for now. Additionally, market watchers are now closely monitoring the Federal Reserve’s policy outlook with many rising bets that authorities will start raising next year. Therefore, there is still room for yields to rise or for bond markets to continue to contract.
Meanwhile, we are witnessing a rise in inflation and many are wondering whether this jump will be transient or persistent in nature. McCormick believes that outliers were the source of the recent spike in core inflation and that inflation may remain short-term in nature.
The Chinese market has also influenced the outlook for global investment. For example, McCormick noted that regulatory interventions remain in the foreground with an unclear impact on broader corporate sentiment. Regulatory topics include national security – foreign registrations, technology / data security, and technological hardware. In addition, social rebalancing, or so-called common prosperity, has focused on rebalancing incomes from the rich to the middle classes to support domestic consumption and deal with demographic headwinds.
“Politics often has a two step forward / one step back model, but (Evergrande’s volatility) always involves going in one direction,†McCormick said. “We expect current campaigns to recall but not reverse.”
Meanwhile, in the United States, US companies are on solid footing with above-expected earnings per share growth, which has helped support the current stock market recovery to record levels. Looking ahead, business investment continues to support expanding and promising prospects.
McCormick also highlighted the long-term benefits of yield generation for fixed income investors. He argued that income drove returns on long-term fixed income securities, not price appreciation. For example, about 75% of the total returns generated by US Treasuries are attributed to income, and 99% of total US high yield returns are generated by income.
To help investors gain better access to various markets in our current market environment, Head of Exchange Traded Funds, Timothy Coyne, highlighted T. Rowe Price’s new active fixed income ETFs that are based on already proven strategies. used by the portfolio manager.
T. Rowe Price recently announced the addition of three new fixed income exchange traded funds (ETFs) to its line of actively managed ETFs, including the T. Rowe Price Total Return ETF (TOTR), the T. Rowe Price Ultra Short Term Bond ETF (TBUX), and the T. Rowe Price QM US Bond ETF (TAGG).
The new ETFs have been selected as core fixed income strategies that can serve as building blocks for a portfolio of clients. Each will be managed by the same investment team and the same processes as versions of existing mutual funds with similar strategies, using the company’s long-standing strategic investing approach characterized by rigorous research, risk awareness and independent decision making.
The company’s lineup of active ETFs complements its traditional mutual fund offerings and offers key features typically associated with ETFs that some investors may prefer, including ongoing daily trading, real-time market-determined pricing, and efficiency. fiscal.
TAGG seeks to provide a total return that exceeds the performance of the US investment grade bond market. It uses its modest tracking error budget to seek to outperform the Bloomberg US Aggregate Bond Index on a net cost basis. The fund is managed by Robert Larkins, who has 18 years of investment experience, all with T. Rowe Price. TAGG has a net expense ratio of 0.08%.
TOTR seeks to maximize total return through income and secondarily capital appreciation. It combines all-weather portfolio building techniques with tactical market insight to generate attractive risk-adjusted income and returns through market cycles. The fund is co-managed by Chris Brown, who has 21 years of investment experience, including 16 at T. Rowe Price, and Anna Dreyer, who has 12 years of investment experience, all at T. Rowe Price. TOTR has a net expense ratio of 0.31%.
TBUX seeks a high level of income compatible with a low volatility of the principal stock. It aims to provide a high level of income while minimizing capital volatility by utilizing a broadly diversified portfolio consisting of short term government bonds, investment grade corporate and securitized bonds. The fund is managed by Alex Obaza, who has 16 years of investment experience, including 13 with T. Rowe Price. TBUX has a net expense ratio of 0.17%.
Financial advisors wishing to learn more about the fixed income markets can watch the webcast here on demand.