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Cash was a super-asset at the onset of the coronavirus pandemic. Investors had then sold their possessions to retain money in the wake of the unparalleled uncertainty caused by the virus pandemic. It was more important to cover day-to-day expenses, more so at the time of no work and lockdowns as people wanted to hoard cash.
This is why money-market and government bond funds witnessed record inflows in late March. Assets in money-market mutual funds surged to a record $4.8 trillion in late May, per Bloomberg, as quoted on Yahoo Finance. However, things have changed a lot now with the Fed’s “unlimited” support and rock-bottom interest rates.
If this was not enough, on Aug 27, the Federal Reserve announced a new strategy to bring back the United States to full employment level and drive inflation back to healthier levels. Under the new scheme, the U.S. central bank will seek to achieve inflation averaging 2% over time, counterbalancing below-2% periods with higher inflation "for some time."
The Fed has also been reluctant to control the yield curve. All these Fed moves boosted benchmark treasury bond yields in August.Better-than-expected second-quarter earnings results and positive updates on vaccine and treatment for virus contributed to risk-on sentiments and a rise in long-term yields in August.
Investors Dumping Cash-Like ETFs
Due to the above-mentioned factors, investors are abandoning cash holdings at a record pace, per Bloomberg, quoted on Yahoo Finance. Roughly $5.4 billion has been pulled out from the $20 billion iShares Short Treasury Bond Exchange-Traded Fund (SHV - Free Report) — the biggest ultra-short duration ETF — over 14 successive weeks of outflows. That marked the longest streak on record for the product.
Meanwhile, investors have extracted about $2.4 billion from the $14 billion SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL - Free Report) over 10 weeks, according to Bloomberg Intelligence data, as quoted on Yahoo Finance. Per the source, Kathy Jones, Charles Schwab Corp.’s chief fixed-income strategist, believes that “short-term Treasury ETFs are looking less attractive than alternatives. Equities are benefiting. We also see interest in foreign equities and high-yield and emerging-market bonds.”
Earn Higher Yield With These ETFs
Against this backdrop, investors can earn higher yields with these following ETFs. Most of the products hail from the U.S. corporate bond market, which swelled to a record $10.5 trillion. Even if there was a steep market selloff in late last week, the corporate bond segment stayed comparatively steady.
The underlying MVIS U.S. Investment Grade Floating Rate Index consists of U.S. dollar denominated floating rate notes issued by corporate issuers and rated investment grade by at least one of the three rating services Moody, S&P or Fitch. The fund charges 14 bps in fees.
Principal Investment Grade Corporate Active ETF (IG - Free Report) ) – Yield 6.48%
This ETF is active and does not track a benchmark. The fund seeks to achieve its investment objective by investing, under normal circumstances, at least 80% of its net assets, plus any borrowings for investment purposes, in investment grade corporate bonds and other fixed income securities at the time of purchase. "Investment grade" securities are rated BBB- or higher by S&P Global Ratings ("S&P Global") or Baa3 or higher by Moody's Investors Service, Inc. ("Moody's") or, if unrated, of comparable quality in the opinion of those selecting such investments.
The underlying ICE BofAML 10+ Year US Corporate Index consists of U.S. dollar-denominated investment-grade corporate bonds that have a remaining maturity of greater than or equal to 10 years and have $250 million or more of outstanding face value. It charges 6 bps in fees.
WisdomTree Emerging Markets Corporate Bond Fund (EMCB - Free Report) – Yield 4.08%
This ETF is active and does not track a benchmark. The fund looks to provide a high level of total return consisting of both income and capital appreciation through investments in the debt of emerging markets corporate issuers. Brazil (10.41%), Russia (9.30%) and India (6.99%) hold the top three geographical allocations. The fund charges 60 bps in fees.
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Forget Cash-Like ETFs; Bet on Higher-Yield ETFs
Cash was a super-asset at the onset of the coronavirus pandemic. Investors had then sold their possessions to retain money in the wake of the unparalleled uncertainty caused by the virus pandemic. It was more important to cover day-to-day expenses, more so at the time of no work and lockdowns as people wanted to hoard cash.
This is why money-market and government bond funds witnessed record inflows in late March. Assets in money-market mutual funds surged to a record $4.8 trillion in late May, per Bloomberg, as quoted on Yahoo Finance. However, things have changed a lot now with the Fed’s “unlimited” support and rock-bottom interest rates.
If this was not enough, on Aug 27, the Federal Reserve announced a new strategy to bring back the United States to full employment level and drive inflation back to healthier levels. Under the new scheme, the U.S. central bank will seek to achieve inflation averaging 2% over time, counterbalancing below-2% periods with higher inflation "for some time."
The Fed has also been reluctant to control the yield curve. All these Fed moves boosted benchmark treasury bond yields in August.Better-than-expected second-quarter earnings results and positive updates on vaccine and treatment for virus contributed to risk-on sentiments and a rise in long-term yields in August.
Investors Dumping Cash-Like ETFs
Due to the above-mentioned factors, investors are abandoning cash holdings at a record pace, per Bloomberg, quoted on Yahoo Finance. Roughly $5.4 billion has been pulled out from the $20 billion iShares Short Treasury Bond Exchange-Traded Fund (SHV - Free Report) — the biggest ultra-short duration ETF — over 14 successive weeks of outflows. That marked the longest streak on record for the product.
Meanwhile, investors have extracted about $2.4 billion from the $14 billion SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL - Free Report) over 10 weeks, according to Bloomberg Intelligence data, as quoted on Yahoo Finance. Per the source, Kathy Jones, Charles Schwab Corp.’s chief fixed-income strategist, believes that “short-term Treasury ETFs are looking less attractive than alternatives. Equities are benefiting. We also see interest in foreign equities and high-yield and emerging-market bonds.”
Earn Higher Yield With These ETFs
Against this backdrop, investors can earn higher yields with these following ETFs. Most of the products hail from the U.S. corporate bond market, which swelled to a record $10.5 trillion. Even if there was a steep market selloff in late last week, the corporate bond segment stayed comparatively steady.
VanEck Vectors Investment Grade Floating Rate ETF (FLTR - Free Report) ) – Yield 2.09%
The underlying MVIS U.S. Investment Grade Floating Rate Index consists of U.S. dollar denominated floating rate notes issued by corporate issuers and rated investment grade by at least one of the three rating services Moody, S&P or Fitch. The fund charges 14 bps in fees.
Principal Investment Grade Corporate Active ETF (IG - Free Report) ) – Yield 6.48%
This ETF is active and does not track a benchmark. The fund seeks to achieve its investment objective by investing, under normal circumstances, at least 80% of its net assets, plus any borrowings for investment purposes, in investment grade corporate bonds and other fixed income securities at the time of purchase. "Investment grade" securities are rated BBB- or higher by S&P Global Ratings ("S&P Global") or Baa3 or higher by Moody's Investors Service, Inc. ("Moody's") or, if unrated, of comparable quality in the opinion of those selecting such investments.
iShares Long-Term Corporate Bond ETF (IGLB - Free Report) ) – Yield 3.40%
The underlying ICE BofAML 10+ Year US Corporate Index consists of U.S. dollar-denominated investment-grade corporate bonds that have a remaining maturity of greater than or equal to 10 years and have $250 million or more of outstanding face value. It charges 6 bps in fees.
WisdomTree Emerging Markets Corporate Bond Fund (EMCB - Free Report) – Yield 4.08%
This ETF is active and does not track a benchmark. The fund looks to provide a high level of total return consisting of both income and capital appreciation through investments in the debt of emerging markets corporate issuers. Brazil (10.41%), Russia (9.30%) and India (6.99%) hold the top three geographical allocations. The fund charges 60 bps in fees.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>