U.S. Fixed Income Overview And How To Invest In Them Through Etfs

While locking in a high yield is one rationale, the other consideration is capital appreciation. Given the inverse relationship between bond yields and price, buying bonds now could be highly profitable. The fact that rates, and by extension yields, were lower in previous years meant that there was little income or embedded yield against which to offset negative price moves. In recent years, price return has been negative, this is primarily due to rising rates.

With rates peaking in the U.S., there is no expectation for this to be a headwind for fixed-income investors, and going forward there will be a far larger yield buffer to cushion any unforeseen, negative price moves. While the timing as to when rates will go down is unknown, there is a clear expectation for yields to fall, and for price return to be a positive driver going forward.

The true case for U.S. fixed income at this immediate juncture is being rewarded for one’s patience. With the yield on high-quality corporate debt portfolios being around five percent, the income represented by these yields can provide the foundation for meaningful future returns and a ballast against current price weakness. With bond yields being at or near their highest level in almost a decade, long-term investors may expect improved future returns on their fixed-income investments.

Though investors need to exercise patience at this juncture of the economic cycle, high-quality fixed income will continue to offer a compelling yield should rates remain as they currently are or higher; however, if rates decline, investors will benefit from this change.

For Canadian investors who are interested in U.S. fixed income, the below solutions are worthy of consideration:

XIGS is a passively managed strategy replicating the ICE (NYSE:ICE) BofA 1-5 Year U.S. Corporate Index (CAD-Hedged), composed of U.S. dollar-denominated, investment-grade corporate bonds with remaining maturities between one and five years. Through this solution, investors gain access to 2000+ high-quality corporate bonds in a single fund.

ZIC (or ZIC.U) is a passively managed strategy that will replicate the Bloomberg Barclays (LON:BARC) U.S. Investment Grade 5-10 Year Corporate Bond Index, which consists of United States dollar-denominated, investment grade, fixed-rate, taxable corporate bonds between 5-10 years until maturity. Through this solution, investors gain access to a diversified portfolio of U.S. corporate bonds and will receive consistent income.

TUHY is an actively managed solution that employs a “buy-and-hold” strategy in selecting high-yield corporate bonds that are rated BB+ to B- by nationally rated credit agencies at the time of purchase and may hold other income-generating securities from issuers located primarily in the United States. The portfolio adviser believes a bottom-up strategy emphasizing analysis of credit fundamentals of the largest issuers of high-yield bonds in a global macroeconomic environment will add value and enhance long-term performance.

The selection and portfolio construction process are based on a methodical risk/return analysis with the objective of capturing long-term returns offered primarily by the pre-selected largest components of the U.S. high-yield bond market.

This content was originally published by our partners at the Canadian ETF Marketplace .