The annual Jackson Hole meeting is upon us. And there’s nothing more sensitive to central banker narratives than the bond market.
Going into the meeting this year we have bonds delivering their worst performance on record in any given year if you consider the AGG as an ETF proxy. Investment grade bonds are down 10% so far in 2022, dropping as U.S. stocks drop too. Investors everywhere will be tuned in to what happens in Wyoming later this week.
Maybe it’s the high correlations across assets that makes it feel like there’s a lot hanging in the balance this time around, or maybe it’s just been a rough year for markets domestically and globally, so every Fed move counts. Maybe it’s recession fears, or bad news burnout. But the fact is that markets price expectations, and crystal balls everywhere seem especially murky this year when it comes to predicting what happens next.
But here’s the good news. If you are an equity ETF investor, you have long been able to invest tactically with high precision. From sectors to factors to themes, equity ETFs have consistently innovated over the years, and today are abundant in flavor and sharper in focus. You can position for the long-term – or for a specific event such as Jackson Hole in the very near term – exactly as you want with ETF tools today.
Fixed income ETF investors, however, haven’t had that privilege. But that’s finally changing. Thanks to some really interesting innovation in the fixed income ETF space, bond investors can now start to really fine tune their exposure, not just in credit but in sovereign debt.
The recent launch of the US Benchmark Series of single Treasury ETFs by F/m Investments offers ETF investors incredibly targeted exposure to the Treasury yield curve. Each of the funds – UTEN, UTWO and TBIL – offer access to a single “on-the-run” Treasury bond, each a 10Yr, 2Yr and 3-month, respectively.
We saw the advent of single stock ETFs earlier this year, and now we welcome the single bond funds. In truth, we first saw BondBloxx break new ground in this space with the lineup of sector-specific high yield bond ETFs, but now we see product innovation that brings specificity to Treasuries.
This is all about high precision positioning across the yield curve. It’s about duration risk management. It’s about investors getting tactical and intentional on their Treasury exposure through ETFs. The key value proposition of these newly minted single Treasury ETFs is to allow investors to manage overall exposure to duration without having to give up on any core bond allocation.
It’s safe to assume that advisors will probably like the ability to sharpen their duration risk without having to sell existing fixed income positions. Market makers will probably love to trade these funds, which should be abundantly liquid. And the options market is already picking up for these new strategies, opening the door to all sorts of interesting plays.
It’s not often we see first-of-a-kind ETF innovation 30 years after the launch of the first U.S.-listed ETF, SPY. But as ETF Nerds, we sure get excited every time we do. And it seems particularly fitting that disruption in fixed income ETF investing would come in a year like 2022 when bond investors are looking for all of the help they can get.
Disclosure
All investments involve risk, including possible loss of principal.
This material is provided for informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.
The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Toroso nor any of its affiliates guarantees any rate of return or the return of capital invested. This commentary material is available for informational purposes only and nothing herein constitutes an offer to sell or a solicitation of an offer to buy any security and nothing herein should be construed as such. All investment strategies and investments involve risk of loss, including the possible loss of all amounts invested, and nothing herein should be construed as a guarantee of any specific outcome or profit. While we have gathered the information presented herein from sources that we believe to be reliable, we cannot guarantee the accuracy or completeness of the information presented and the information presented should not be relied upon as such. Any opinions expressed herein are our opinions and are current only as of the date of distribution, and are subject to change without notice. We disclaim any obligation to provide revised opinions in the event of changed circumstances.
The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Toroso or its affiliates or any of their officers or employees of Toroso accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Toroso. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of and observe such restrictions (if any).
