Latest news with #Bartolini
CNBC
3 days ago
- Business
- CNBC
How investors can use these high-yielding assets to diversify their portfolios
With interest rates still elevated, investors continue to find juicy yields in collateralized loan obligations. Some $4.7 trillion has flowed into CLO and bank loan exchange-traded funds since the start of the year, following 2024's record $25.6 billion in inflows , according to State Street. While investors fled the funds, along with many others, in April, the ETFs have bounced back. In May, $2 trillion in new money moved into bank loan and CLO ETFs, the ninth best month ever, State Street analyst Matthew Bartolini said in a May 31 note. CLOs are securitized pools of floating-rate loans to businesses and so their coupon payments shift alongside short-term interest rate changes. "That credit segment may continue to receive above-average inflows, given that sector's floating-rate profile and the Fed's 'wait-and-see' approach to rate cuts," Bartolini wrote. The Federal Reserve is set to meet on June 17-18 and is widely expected to hold interest rates steady, as it has been all year. Traders anticipate the next cut to come in September, according to the CME FedWatch Tool . Once the central bank starts to dial back rates, yields on CLOs are expected to gradually move down. Himani Trivedi, head of structured credit at Nuveen, said demand for the products has been steady up and down the capital structure, and expects that to continue. "There's not many floaters out there. So this has been a really good diversifier for investors," she said. "Given the volatility and potential for higher for longer, it still continues to see that flow come in, up and down the capital structure, for CLOs." Right now the Janus Henderson AAA CLO ETF (JAAA) has a 30-day SEC yield of 5.48% and a net expense ratio of 0.20%. It has $20.96 billion in assets under management as of Thursday. Some $4 billion has moved into the fund so far this year, according to FactSet. "With CLOs, you're getting a decent return," said John Kerschner, head of U.S. securitized products and a portfolio manager at Janus. "You're not taking outsized risk." JAAA YTD mountain Janus Henderson AAA CLO ETF year to date In fact, during the recent market dislocation, spreads on CLOs widened but had much less volatility than corporate credit or other parts of the bond market, he said. Liquidity was "incredible," he added. "It just showed that in these dislocations, instead of liquidity drying up, it actually gets better," Kerschner said. "There's more trading and that's what you want as an end investor." Picking up more yield Investors can pick up more yield as they move down in ratings, although those CLOs rated AAA are the first in line to get paid if the borrower declares bankruptcy. Nuveen launched its AA-BBB CLO ETF (NCLO) in December. It currently has a 6.4% 30-day SEC yield and 0.25% total expense ratio. It has collected $19 million in flows year to date, per FactSet, and has net assets of $89.4 million. NCLO YTD mountain Nuveen AA-BBB CLO ETF year to date While the ETF holds CLOs below AAA, they are still investment grade, Trivedi said. Assets with a rating of BBB- or higher by Standard & Poor's or Baa3 or better by Moody's, are considered investment grade and have a lower default risk compared to assets with lower ratings. Strong fundamentals have kept CLO defaults low, she noted. "They do provide a spread pick up, so where, even when the rates go down, you still have this additional carry," Trivedi said of those in the AA to BBB range. That carry is about 200 basis points over Secured Overnight Financing Rate (SOFR), which is the primary benchmark for CLOs, she added. "So even if SOFR was going down, against other fixed income instruments, you will get that extra credit spread for a minimal risk," she said. In addition, a recent analysis by VanEck found that over the past decade, A-rated CLOs outperformed AAA CLOs by 142 basis points a year. They also have lower volatility than investment-grade corporate bonds. BBB-rated CLOs topped AAAs by 147 basis points, the analysis found. The firm launched the VanEck AA-BBB CLO ETF (CLOB) last September. The fund invests primarily in the AA- to BB-rated tranches, has a 7.17% 30-day SEC yield and a 0.45% expense ratio. It has $116.39 million in total net assets, as of Thursday. Janus Henderson also has a lower-investment grade CLO product, the B-BBB CLO ETF (JBBB), launched in 2022. It has $1.33 billion in assets under management. The fund has seen outflows of $62 million year to date. CLOs in your portfolio While CLOs can be an attractive part of your income portfolio, investors should make sure they are diversified. When the Fed does start to cut rates, CLO yields will follow — and investors will need to make sure they also have some longer-dated bonds. Financial advisors and investment experts have been recommending intermediate-term duration assets for fixed-income investors. Janus Henderson's Kerschner likes to use AAA CLOs in more of a barbell approach, with the floating-rate assets on one end and longer duration agency mortgage-backed securities on the other. The firm's Mortgage-Backed Securities ETF (JMBS) has an effective duration of 7 years, a 5.11% 30-day SEC yield and 0.22% net expense ratio. That doesn't mean investors shouldn't have other assets in their fixed income portfolio, but he likes this barbell for at least over the next six to 12 months — and potentially longer. Nuveen sees CLOs as an excellent diversifier because they have a low correlation to most fixed-income assets. Because they are versatile, they can fill a variety of roles within the portfolio — including an alternative to short-duration bonds or a complement to high-yield bonds, the firm said in a rjecent note. Whether to stick with AAA-rated CLOs or the lower investment-grade assets depends on the investors time horizon, Trivedi explained. AAA-rated products can be seen more as a short-term cash investment, while the AA-BBB makes sense for a longer-term core investment, she said. "They can continue to get that coupon even when the rates go higher or lower," she said. "They're in a good safe spot."
Yahoo
06-05-2025
- Business
- Yahoo
State Street Report Shows Big Slump in April ETF Inflows
A slowdown in ETF adoption threatens State Street Global Advisors' (STT) full-year forecast of $1.3 trillion of inflows, according to the firm's latest "US-Listed ETF Flash Flows" report. Exchange-traded funds recorded $62 billion of inflows in April, marking the lowest monthly total in a year as investors retreated from riskier assets amid mounting volatility from escalating trade tensions. Despite global equities posting gains in April, U.S. stocks suffered losses as trade war volatility had a concentrated impact on domestic markets, reshaping investor sentiment and positioning across multiple asset classes. Gold ETFs attracted $3.8 billion, ranking as the 10th-highest monthly inflow ever for the category, while equity ETFs managed just $32 billion, their 40th-best month historically. "The redesign and paradigm shift of global macroeconomic modalities just pressurized markets," wrote Matthew Bartolini, head of Americas ETF research at State Street Global Advisors in the report. He compared the effect of recent tariff announcements to carbonated water, noting, "The infusion of the exogenous tariff variable, like CO2 gas being dissolved in spring water to form carbonic acid, transformed the market's general properties." Investors Seek Safety with Defensive Plays The major reversal came from sector ETFs, which experienced their worst-ever monthly outflows at $11 billion. The selloff was widespread, with only the defensive utilities sector managing inflows of $171 million. The outflows pushed the three-month rolling total to $21.5 billion, the second-worst on record. Credit sectors also faced pressure, with a record $15 billion fleeing from investment-grade corporate bonds, high-yield bonds and bank loan ETFs. The bank loan and collateralized loan obligation category saw its largest-ever outflow of $5 billion, while investment-grade corporates shed $4.6 billion, also a record. According to Bartolini, these outflows represent "a complete reversal of the trend leading up to April, as investors were visibly overweight credit, reflecting a bias toward an environment of rising growth." That economic environment now appears less likely given recent data and the potential impact of tariffs on consumption. Cautious investors poured $19 billion into ultra-short and short-term government bond ETFs in April, marking their second-largest monthly inflow ever, behind only the $20.2 billion recorded during March 2020 at the onset of the pandemic. The three-month rolling total reached a record $34 billion, exceeding the previous high of $27 billion set in 2022 during aggressive Federal Reserve tightening.
Yahoo
19-02-2025
- Business
- Yahoo
Vanguard Rides VOO's Ascent to Top of the ETF Heap
The crown for the world's largest exchange-traded fund has been transferred, at least for now, to the Vanguard S&P 500 ETF (VOO) from the SPDR S&P 500 ETF Trust (SPY), which held the title for most of its 32-year existence. VOO, at $631.8 billion in assets Tuesday morning, edged ahead of SPY by about $1.5 billion, thus wrapping up the months-long asset race for those of us who are paid to pay attention to such things. But this is not the end of the jostling in the ever-evolving $10.7 trillion ETF space. Anyone paying even cursory attention to the asset flow data beneath the ETF industry can appreciate the shifting dynamics along with various driving forces. Sure, VOO surpassed SPY's total assets after net inflows of $121.1 billion last year, nearly five times the $23.6 billion taken in by SPY. But Vanguard Group, overall, has become an asset magnet lately. According to the latest data from ETFGI, Vanguard's $36 billion worth of January inflows represented 40% of the $90 billion that went into ETFs last month. The next-closest firm was BlackRock's iShares, which took in $9.6 billion. State Street Global Advisors, which launched SPY in 1993 as the first U.S. ETF, experienced $11.3 billion worth of net outflows in January. But State Street sees silver linings in its lineup—even as SPY loses its crown. 'It speaks to the maturation of an industry where investors have so many different options to get exposure to broad market equity indexes,' said Matt Bartolini, head of SPDR Americas Research at State Street. He points to the $60 billion SPDR Portfolio S&P 500 ETF (SPLG), which took in $20 billion last year and has already taken in $4 billion this year. On a side-by-side comparison, VOO and SPY each have characteristics that make them viable ETFs for a long time to come. SPY, which charges 9 basis points, has a liquidity advantage that is attractive to options traders and sophisticated investors. 'SPY is a unicorn of an ETF,' Bartolini said. 'Last year it traded over $9 trillion in the secondary market; it's used by a diverse range of clients with diverse motivations and buying behaviors.' Meanwhile, at 3 basis points, VOO likely appeals to investors looking for low-cost broad market index exposure. To that, Bartolini points to SPLG, which charges just 2 basis points. 'It's great to be the biggest ETF in the world, but it only matters if your clients are happy,' he added. Vanguard appears to be hitting on all cylinders following fee cuts to more than half its ETF lineup just last month. But even Vanguard might be facing a wall as an ETF issuer with just six active funds at a time when investor appetite shows a shift toward active strategies. Vanguard also stands out as one of the cryptocurrency ETF holdouts, essentially shutting the door on the most popular ETF category. In an emailed comment regarding the VOO milestone, Rodney Gomegys, Global Head of Equity Investment Group at Vanguard, credited Vanguard's 'unmatched focus on the best interests of our investors.' 'Throughout 2024 and continuing into early 2025, the market environment has been generally favorable to large-cap U.S. equities, which has contributed to continued enthusiasm for S&P 500 ETFs and other large-cap strategies across the industry' he added. 'And as ETF model portfolios continue to gain traction with investors and advisors, allocations to broadly diversified, low-cost, highly liquid ETFs like VOO have continued to increase.'Permalink | © Copyright 2025 All rights reserved Sign in to access your portfolio
