IN THE DRIVER’S SEAT WITH BOND ETFs

September marked the first Fed cut this year, with interest rates lowered by 25bps to 4%-4.25%. However, the path ahead is uncertain with rates remaining volatile. With the bond ETF toolkit available today, we ask investors to get in the driver’s seat, take the wheel with bond ETFs, and ride out the bumpy curve with confidence.

Alongside the policy rate cut last month, the Fed also forecasted more reductions in its Summary of Economic Projections, indicating more cuts to come. If realized, the Fed policy downshift could reshape the yield curve and influence the relative appeal of cash as an investment, as investors will increasingly need to step out of cash to maintain the same levels of yields. Yet, as highlighted last month, investors have continued to stay on the sidelines in cash. Hence, we shift gears into key exposures for a rate cutting environment that can manage reinvestment risk while seeking price appreciation opportunities.

Take the driver’s seat through duration positioning at the belly of the curve. This rate cut cycle is calling for granular risk control in duration positioning. Less dependent on policy rates than the short end and less sensitive to long-end volatility, the 3-7Y belly of the curve remains the sweet spot between income and duration, offering a mix of downside insulation while also participating in the benefits of modest duration during an easing cycle.

Buckle your seat belts by locking in yields still at decade-highs with iBonds. Target maturity ETFs offer the opportunity to secure decade-high yields and reduce reinvestment risk before rates continue to fall. Designed to mature like a bond in a defined year, iBonds ETFs allow investors to “lock in” annualized yields upwards of 4% in USD IG for up to 10 years, through a liquid ETF vehicle offering diversified exposure to hundreds of bonds in one fund.

Activate power steering using AAA CLOs for extra juice to maximize income. AAA CLOs present a compelling opportunity to keep duration minimal yet maximize income, all while staying in the highest quality. A traditionally niche exposure to the broader investor base, AAA CLO ETFs now offer liquid access to the floating rate asset class yielding 5.4%. Read all about AAA CLOs here.

Enable cruise control with active ETFs to outsource decision making. For investors looking to outsource decision making and add dynamism to portfolios, active bond ETFs provide access to active portfolio management across fundamental, systematic, and cash strategies. Notably, a flexible income active ETF takes an unconstrained approach to seek attractive, risk-adjusted income.

Regardless of how the rate environment plays out, bond ETFs are the vehicle of choice for investors to implement precise allocations across the bond market while quickly responding to changing conditions.