13 Fixed Income ETFs On the Move Upwards

Fixed income continues to be the steady upward asset, but not all fixed income.

Sorting through the 270 ETFs with at least $1 million per day in trading volume, looking for those that are strongly upward moving, we find these 13 hitting on all cylinders:

Criterion Tests:

In addition to the liquidity of $1 million per day in volume, we used this stringent test to identify the strongest ETFs in term of established upward trend:

• 40-wk average for this week > 40-wk average for 4 weeks ago
• 20-wk average for this week > 20-wk average for 4 weeks ago
• 10-wk average for this week > 10-wk average for 4 weeks ago
• 5-wk average for this week > 5-wk average for 4 weeks ago

• 40-wk average for this week > 40-wk average for 2 weeks ago
• 20-wk average for this week > 20-wk average for 2 weeks ago
• 10-wk average for this week > 10-wk average for 2 weeks ago
• 5-wk average for this week > 5-wk average for 2 weeks ago

• price > 40-wk average
• 5-wk average > 40-wk average
• 10-wk average > 40-wk average
• 20-wk average > 40-wk average

• price > 5-wk average
• 5-wk average > 10-wk average
• 10-wk average > 20-wk average

There are others that are in various stages of approach to these conditions, but these 13 are the ones that are there as of this time.

Disclosure: We own AGG and BND in various managed accounts.

Comments

[starvin sar...:]

Richard, Thanks for the new work providing analysis of trends. In times of emotion good systems can really help. I have not seen you comment on CEF. What is your thinking about using them for the fixed income portion of a portfolio? What grade bonds would you be wanting to find in an inflationary environment? Thanks Richard

May 23 09:33 PM

[Richard Shaw:]

Closed-end funds are often leveraged and tend to have high expense ratios relative to mutual funds or ETFs. Expense ratios are always important, but are even more important for bond funds than for equities due to the generally lower returns on bond funds. CEFs also may have less liquidity or higher bid/ask spreads than ETFs. On balance, don't use CEFs if you have a close alternative in the form of a mutual fund or ETF. If there is no alternative and you really want what a CEF has, then consider owning the CEF.

The only bonds that are expected to perform well during inflation are TIPS (Treasury Inflation Protected Securities) -- but they will only go up as much as the CPI (which is arbitrarily measured by the same government that must pay the bills, so watch out on that). Since inflation normally associated with higher interest rates, it is hard to want to own any bonds in an inflationary environment. The shorter the maturity, the quicker you could reinvest at higher rates -- remember shorter maturities cut both ways (can't lock in rates long term if you expect rates to fall). Mortgage funds can behave in different ways based on fixed or variable rates and the rate of refinancing (no suggestions there, just a note that they take special care when being considered). Ideally, I would think you'd want inflation protected bonds or very short bonds while rates are rising, then lock in rates with longer-term bonds if you are able to assess that rates are near a peak -- how hard that may be is unknowable at this time, as we are in unchartered territory.

May 23 10:45 PM

[starvin sar...:]

Thanks for your through response. Please keep up the good work.


On May 23 10:45 PM Richard Shaw wrote:

> Closed-end funds are often leveraged and tend to have high expense
> ratios relative to mutual funds or ETFs. Expense ratios are always
> important, but are even more important for bond funds than for equities
> due to the generally lower returns on bond funds. CEFs also may have
> less liquidity or higher bid/ask spreads than ETFs. On balance, don't
> use CEFs if you have a close alternative in the form of a mutual
> fund or ETF. If there is no alternative and you really want what
> a CEF has, then consider owning the CEF.
>
> The only bonds that are expected to perform well during inflation
> are TIPS (Treasury Inflation Protected Securities) -- but they will
> only go up as much as the CPI (which is arbitrarily measured by the
> same government that must pay the bills, so watch out on that). Since
> inflation normally associated with higher interest rates, it is hard
> to want to own any bonds in an inflationary environment. The shorter
> the maturity, the quicker you could reinvest at higher rates -- remember
> shorter maturities cut both ways (can't lock in rates long term if
> you expect rates to fall). Mortgage funds can behave in different
> ways based on fixed or variable rates and the rate of refinancing
> (no suggestions there, just a note that they take special care when
> being considered). Ideally, I would think you'd want inflation protected
> bonds or very short bonds while rates are rising, then lock in rates
> with longer-term bonds if you are able to assess that rates are near
> a peak -- how hard that may be is unknowable at this time, as we
> are in unchartered territory.

May 26 06:18 AM