There may be advantages to owning corporate bonds right now.
JPMorgan’s Bryon Lake believes his firm’s Ultra-Short Income ETF (JPST) is ideal for those looking to make money outside the volatile stock market.
“Some of the corporates got higher quality than the U.S. government [bonds] right now,” he told CNBC’s “ETF Edge” this week.
Lake, JPMorgan’s global head of ETF Solutions, also sees the firm’s active management strategy as an advantage of owning the JPST.
“We’re only taking on six-month duration, and so we got it nice and tight in there, so you’ve got very attractive credit quality,” he said.
The JPST has $23 billion in assets under management and has an “A” fund rating, according to FactSet. However, gains have been anemic. The fund’s performance is virtually flat year to date.
But that could be about to change.
Strategas Securities’ Todd Sohn also likes corporate bonds, citing the the monetary policy backdrop.
‘This is candy’
“As long as you’re in this higher-for-longer environment, this is candy — especially after not having it for 10-plus years during the QE [quantitative easing] era. You now just put a bowl of M&Ms in front of a child and can get that 5% … . That’s the analogy I like to use,” said Sohn, the firm’s managing director and technical strategist. “The TLT (iShares 20+ Year Treasury Bond ETF) has the same standard deviation as the S&P 500 roughly right now.”
Sohn said that factor is a key reason why money market funds and short-duration products are attractive.
“Duration makes sense when the [Federal Reserve] is done hiking in anticipation of cuts,” Sohn said. “But if no cuts are coming, I don’t think you want that volatility. It’s not fun to sit in.”
The TLT is down almost 15% so far this year and off 25% over the past five years.