If someone offers to talk about fixed income ETFs in the wake of the current fixed-income environment and interest rate “situation,” we’re all ears.
“Obviously, interest rate volatility is creating fixed income anxiety,” William Belden, managing director of product development with Guggenheim Investments, told ThinkAdvisor on Thursday. “In the fixed income ETF space, an ebbing of inflows was seen and even outflows as investors wondered if rising rates portends a trend in and of itself,” he added understatedly.
Of course it most likely does portend a trend, Belden (left) noted, but people are wondering how soon and how fast it will happen.
“We feel we are positioned well not only to guard against what’s happening but to take advantage of it,” he argued. “We have a suite of defined maturity ETFs, which have a definitive life attached to them so any interest rate risk is mitigated.”
Belden was referring to Guggenheim BulletShares ETFs, with maturity dates spanning from 2013 to 2022. It includes 16 corporate bond and high-yield corporate bond ETFs from which to choose.
“Mutual funds and many other fixed income ETFs have that continuous maturity aspect attached to them,” he continued. “The investor has no idea what it will be worth, let alone when they need it.”
With that defined maturity, they have the confidence of knowing they will get a certain amount when needed, he claimed.
“It weds bond funds to individual bond component. As a result of this structure, we continue to see inflows, and, in fact, we’re on track for the highest sales month in July in the product’s history. We just passed $3 billion in assets under management in the BulletShare suite by being in the right place at the right time.”
How else do you deal with all that’s happening in fixed income, he asked?
“You can shorten your duration, obviously,” says Belden (left). “Finding yield has always been a headwind, but it doesn’t make much difference if you take on added risk to go from zero basis points to 25 basis points.”
For this reason, he concluded, Guggenheim offers a short-duration product, the Guggenheim Enhanced Short Duration Bond ETF (GSY), that has a three- or four-month maturity with low risk and low volatility.
“You might get 100 basis points of yield, which again is not a lot, but for a strategic type of investment with low risk and low volatility, a money market type of play, it’s very good for that.”