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
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,
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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