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Active fixed income ETFs offer more choice for yield
8/17/2017 5:56:03 AM
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By Fund Library News Wire  | Tuesday, June 06, 2017


 

 

By Michael Cooke, Senior Vice President, Head of Exchange Traded Funds, Mackenzie Investments.

It’s a low-yield world these days for ETF bond investors who want portfolios that grow their capital and generate income. Amid expectations for rising U.S. interest rates and higher inflation, ETF investors want more choices for innovative fixed-income solutions. Fortunately, they have choices. Active fixed income ETFs have the ability to deliver value at competitive pricing in today’s environment.

Actively managed ETFs allow investors to benefit from professional portfolio management and the various structural advantages of an ETF. Portfolio managers bring expertise in applying differentiated strategies to an expanded range to fixed income securities, such as high yield bonds, within an ETF. The ETF structure offers enhanced liquidity and accessibility; portfolio managers bring value such as credit analysis, trade execution and risk management. This creates an opportunity to create active bond ETFs designed to provide steady income with potential for long-term capital growth. It’s an active choice for delivering alpha for ETF investors.

Yields on traditional government bonds remain low by historical standards. Again, ETF investors and their financial advisors need more choices to expand their opportunities. High yield bonds, which are issued by corporations and governments around the world, tend to have lower credit ratings than investment-grade bonds but pay a higher yield for that risk. Generally, high yield bonds have provided a lower correlation to traditional fixed-income securities, which means they offer the potential for portfolio diversification. A high yield bond ETF can complement core fixed-income holdings of a portfolio.

As you can imagine, managing a high-yield bond ETF is specialized work. It requires expertise in evaluating securities for their risk/reward potential. For example, the Mackenzie Fixed Income Team manages the new Mackenzie Global High Yield Fixed Income ETF (NEO: MHYB) by applying rigorous credit analysis, assessing relative and absolute valuations, and active trade execution. In a continuous search for yield, the Team looks to uncover the most attractive risk-adjusted opportunities within the global high-yield asset class.

Continuous innovation gives ETF investors and their advisors more choices for income solutions amid the rapid changes in markets. Active fixed income ETFs can provide a diversified solution for generating income and managing volatility in a low-yield world.

Michael Cooke is Senior Vice President, Head of Exchange Traded Funds, at Mackenzie Investments. This article first appeared in the Spring 2017 issue of Your Guide to ETF Investing, published by Brights Roberts Inc. Reprinted with permission.

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