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The fixed-income market is riding high of late on the Fed’s dovish stance. Several muni bonds and corporate bond ETFs have been trading around a one-month high. On top of it, on May 1, the Fed cut “the rate on one of the tools it uses to help control its benchmark even as it left unchanged the overall target range for the fed funds rate.”
Fed officials agreed to slash the interest paid on excess reserves by 5 basis points to 2.35%, effective May 2, although policy makers kept the overall target range for the fed funds rate unchanged at 2.25% to 2.50%. Fed Chairman Jerome Powell described it as a “small technical adjustment,” per Bloomberg.
Against this backdrop, below we highlight a few fixed-income ETFs that emerged as top-performers in the past month. The one-month returns are as per xtf.com (as of May 1, 2019).
Barclays Inverse US Treasury Composite ETN – Up 4.21%
U.S. treasury yield curve has steepened in the month. The benchmark 10-year U.S. treasury yield rose to 2.51% on Apr 26 from 2.49% at the start of the month, hitting a high of 2.60% in mid-month. On the other hand, short-term, two-year U.S. treasury yield dropped to 2.28% at month-end from 2.33% noticed at the start. This steepening of the yield curve works in favor of the fund.
The underlying Barclays Inverse US Treasury Futures Composite Index employs a strategy that tracks the sum of the returns of periodically rebalanced short positions in equal face values of each of the 2-year, 5-year, 10-year, long-bond and ultra-long U.S. Treasury futures contracts. The fund charges 43 bps in fees.
The US annual inflation rate picked up in March and rose to 1.9% at month-end from a two-and-a-half-year low of 1.5% in the previous month, slightly above the market consensus of 1.8%. Food prices increased at a faster clip while energy deflation eased. Such a slight uptick in inflation may have favored the fund.
The underlying FTSE 30-Year TIPS (Treasury Rate-Hedged) Index tracks the performance of long positions in the most recently issued 30-year TIPS and duration-adjusted short positions in U.S. Treasury bonds of, in aggregate, approximate equivalent duration dollars to the TIPS. The fund charges 30 bps in fees.
Senior loans, also known as leveraged loans, are private debt instruments issued by a bank and syndicated by a group of banks or institutional investors. These provide capital to companies that have below-investment grade credit ratings. In order to compensate for this high risk, senior loans usually pay higher yields.
This ETF is active and does not track a benchmark. The SPDR Blackstone / GSO Senior Loan ETF seeks to provide current income consistent with the preservation of capital. The fund yields 5.10% annually.
The fund is an actively managed exchange-traded fund that seeks to capitalize on the relatively attractive yield within the senior loan market while seeking to mitigate interest rate risk. The fund seeks to provide high current income by investing primarily in a diversified portfolio of first lien senior floating rate bank loans. It yields about 4.40% annually.
Floating rate notes are investment grade bonds that do not pay a fixed rate to investors but have variable coupon rates that are often tied to an underlying index (such as LIBOR) plus a variable spread depending on the credit risk of the issuers. Since the coupons of these bonds are adjusted periodically, they are less sensitive to an increase in rates compared to traditional bonds (read: Hedge Rising Rates with Floating Rate ETFs).
Here, the fund FLRT looks to provide high current income andyields 4.08% annually.
Invesco Corporate Income Value ETF – Up 1.5%
The underlying Invesco High Yield Value Index provides exposure to higher value, U.S. high yield bonds and bonds with the lowest credit rating considered investment grade. The fund yields 4.78% annually (see all High-Yield/Junk Bond ETFs here).
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Best-Performing Fixed-Income ETFs of April
The fixed-income market is riding high of late on the Fed’s dovish stance. Several muni bonds and corporate bond ETFs have been trading around a one-month high. On top of it, on May 1, the Fed cut “the rate on one of the tools it uses to help control its benchmark even as it left unchanged the overall target range for the fed funds rate.”
Fed officials agreed to slash the interest paid on excess reserves by 5 basis points to 2.35%, effective May 2, although policy makers kept the overall target range for the fed funds rate unchanged at 2.25% to 2.50%. Fed Chairman Jerome Powell described it as a “small technical adjustment,” per Bloomberg.
Against this backdrop, below we highlight a few fixed-income ETFs that emerged as top-performers in the past month. The one-month returns are as per xtf.com (as of May 1, 2019).
Barclays Inverse US Treasury Composite ETN – Up 4.21%
U.S. treasury yield curve has steepened in the month. The benchmark 10-year U.S. treasury yield rose to 2.51% on Apr 26 from 2.49% at the start of the month, hitting a high of 2.60% in mid-month. On the other hand, short-term, two-year U.S. treasury yield dropped to 2.28% at month-end from 2.33% noticed at the start. This steepening of the yield curve works in favor of the fund.
The underlying Barclays Inverse US Treasury Futures Composite Index employs a strategy that tracks the sum of the returns of periodically rebalanced short positions in equal face values of each of the 2-year, 5-year, 10-year, long-bond and ultra-long U.S. Treasury futures contracts. The fund charges 43 bps in fees.
ProShares Inflation Expectations ETF (RINF - Free Report) – Up 3%
The US annual inflation rate picked up in March and rose to 1.9% at month-end from a two-and-a-half-year low of 1.5% in the previous month, slightly above the market consensus of 1.8%. Food prices increased at a faster clip while energy deflation eased. Such a slight uptick in inflation may have favored the fund.
The underlying FTSE 30-Year TIPS (Treasury Rate-Hedged) Index tracks the performance of long positions in the most recently issued 30-year TIPS and duration-adjusted short positions in U.S. Treasury bonds of, in aggregate, approximate equivalent duration dollars to the TIPS. The fund charges 30 bps in fees.
SPDR Blackstone / GSO Senior Loan ETF (SRLN - Free Report) – Up 2.2%
Senior loans, also known as leveraged loans, are private debt instruments issued by a bank and syndicated by a group of banks or institutional investors. These provide capital to companies that have below-investment grade credit ratings. In order to compensate for this high risk, senior loans usually pay higher yields.
This ETF is active and does not track a benchmark. The SPDR Blackstone / GSO Senior Loan ETF seeks to provide current income consistent with the preservation of capital. The fund yields 5.10% annually.
First Trust Senior Loan Fund (FTSL - Free Report) – Up 2.1%
The fund is an actively managed exchange-traded fund that seeks to capitalize on the relatively attractive yield within the senior loan market while seeking to mitigate interest rate risk. The fund seeks to provide high current income by investing primarily in a diversified portfolio of first lien senior floating rate bank loans. It yields about 4.40% annually.
AdvisorShares Pacific Asset Enhanced Floating Rate ETF (FLRT - Free Report) – Up 1.7%
Floating rate notes are investment grade bonds that do not pay a fixed rate to investors but have variable coupon rates that are often tied to an underlying index (such as LIBOR) plus a variable spread depending on the credit risk of the issuers. Since the coupons of these bonds are adjusted periodically, they are less sensitive to an increase in rates compared to traditional bonds (read: Hedge Rising Rates with Floating Rate ETFs).
Here, the fund FLRT looks to provide high current income andyields 4.08% annually.
Invesco Corporate Income Value ETF – Up 1.5%
The underlying Invesco High Yield Value Index provides exposure to higher value, U.S. high yield bonds and bonds with the lowest credit rating considered investment grade. The fund yields 4.78% annually (see all High-Yield/Junk Bond ETFs here).
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Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>