MW Here's how bond ETFs fared as investors parsed new inflation, jobless-claims data
By Christine Idzelis
'This probably doesn't throw the Fed off track,' says BlackRock's Steve Laipply
Hello! This week's ETF Wrap shines the light on bond-fund performance as investors on Thursday weighed fresh inflation and jobless-claims data.
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Exchange-traded funds that provide broad exposure to the bond market slipped Thursday as investors parsed the latest data on U.S. inflation and jobless claims, although ETFs targeting shorter-term and intermediate-term Treasurys rose.
The market was weighing on Thursday a fresh reading on U.S. inflation from the consumer-price index as well as the weekly jobless-claims report - data points that relate to the Federal Reserve's goals of price stability and maximum employment. Both reports were higher than forecast.
"This probably doesn't throw the Fed off track," said Steve Laipply, global co-head of bond ETFs at BlackRock, in a phone interview, referring to the Federal Reserve's interest-rate cutting cycle which began just last month.
The iShares 1- 3 Year Treasury Bond ETF SHY and iShares 3 - 7 Year Treasury Bond ETF IEI each rose 0.1% on Thursday, according to FactSet data. Shares of funds targeting long-term maturities fell, though, with the iShares 20+ Year Treasury Bond ETF TLT closing 0.4% lower Thursday.
The bond market's reaction Thursday "sort of speaks to the fact that the Fed has a dual mandate," with the market "trying to balance" the readings on inflation and jobless claims, according to Laipply.
"We do see value in the intermediate part of the curve," he said.
Shares of the iShares 3 - 7 Year Treasury Bond ETF, which focuses on intermediate-term Treasurys, have gained 2.9% on a total-return basis this year through Thursday, FactSet data show.
Among actively managed bond funds, the iShares Flexible Income Active ETF BINC also has been favoring the so-called belly of the yield curve, said Laipply, but it invests across fixed-income sectors globally.
The iShares Flexible Income Active ETF, led by Rick Rieder, BlackRock's chief investment officer of global fixed income, has seen a total return so far this year of 5.3% after ending Thursday about flat, according to FactSet data.
Go for active ETFs?
Investors are increasingly turning to active ETFs as part of their portfolios, willing to pay more for them than passive funds in the hope that the professional managers will succeed in delivering market-beating returns, according to David Botset, head of innovation and stewardship at Schwab Asset Management.
While Schwab's annual ETF study released on Thursday showed that total cost was again the most important factor for investors when choosing an exchange-traded fund, the survey also found that the proportion of investors citing a portfolio manager's experience and track record as an "extremely important" factor rose to 51% in 2024, from 46% in 2023.
That rise is likely because of the increased adoption of active ETFs, Botset said in an interview.
Meanwhile, the iShares Core U.S. Aggregate Bond ETF AGG, which passively provides broad exposure to the U.S. investment-grade bond market, shed 0.1% Thursday for a total gain of 3% so far this year, according to FactSet data.
The iShares Core Total USD Bond Market ETF IUSB, which gives investors even broader exposure to fixed income by tracking an index of U.S. dollar-denominated bonds that includes below-investment-grade and emerging-market debt, also dipped 0.1% Thursday. That brought its total return so far this year to 3.6%, FactSet data show.
Inflation and jobless claims
Thursday's inflation report showed that inflation, as measured by the consumer-price index, rose 0.2% in September for a year-over-year rate that eased slightly from August to 2.4%. Core inflation, which excludes food and energy prices, increased 0.3% last month for an annual rate that edged up from August to 3.3%
"It was broadly a step in the right direction, but maybe not to the extent that had been hoped for in the marketplace," said Mona Mahajan, senior investment strategist at Edward Jones, in a phone interview.
To her point, the inflation reading was slightly stronger than forecast by economists polled by the Wall Street Journal. Meanwhile, jobless-claims data released Thursday showed initial claims rose in the week ended Oct. 5 by more than Wall Street expected, to 258,000.
"The jobs report last week was promising," as it gave "a good, healthy picture of the labor market," said Mahajan. "But this jobless-claims number gave a little bit of pause" to those who maybe thought the labor market had "no cracks" in it, she added. However, "part of the spike in jobless claims" might have been tied to Hurricane Helene, according to Mahajan.
While yield on the 10-year Treasury note BX:TMUBMUSD10Y rose 2.9 basis points Thursday to 4.093%, the 2-year Treasury yield BX:TMUBMUSD02Y fell 1.8 basis points to 3.997%, according to Dow Jones Market Data.
The decline in the 2-year Treasury yield reflects expectations that "the Fed may continue to move rates lower," Mahajan said.
As usual, here's your look at the top- and bottom-performing ETFs over the past week through Wednesday, according to FactSet data
The good...
Top performers %Performance YieldMax MSTR Option Income Strategy ETF 9.8 YieldMax NVDA Option Income Strategy ETF 6.0 iShares Future AI & Tech ETF 4.8 Amplify Cybersecurity ETF 4.4 First Trust Nasdaq Cybersecurity 4.4 Source: FactSet data through Wednesday, Oct. 9. Start date Oct. 3. Excludes ETNs and leveraged products. Includes NYSE-, Nasdaq- and Cboe-traded ETFs of $500 million or greater.
...and the bad
Bottom performers %Performance United States Natural Gas Fund LP -10.9 Xtrackers Harvest CSI 300 China A-Shares ETF -8.7 KraneShares CSI China Internet ETF -7.0 iShares MSCI China ETF -5.5 iShares China Large-Cap ETF -5.0 Source: FactSet data
New ETFs
-- SEI said Thursday that it launched three actively managed ETFs, including the SEI Select Small Cap ETF SEIS, SEI Select International Equity ETF SEIE and SEI Select Emerging Markets Equity ETF SEEM.
-- Krane Funds Advisors said Oct. 8 it launched the KraneShares Man Buyout Beta Index ETF BUYO, "designed to apply the key return drivers" of private-equity and buyout funds to publicly traded equities. The fund takes a "systematic approach to select a portfolio of small- to midcap stocks from the Russell 2500 Index," according to the announcement.
-- YieldMax announced on Oct. 8 the launch of the YieldMax PLTR Option Income Strategy ETF PLTY, which seeks to provide income via options-based strategies on Palantir Technologies Inc. The ETF does not directly invest in Palantir, YieldMax said.
Weekly ETF reads
-- Investment Industry Loves Active ETFs. You Probably Shouldn't (Wall Street Journal)
-- Is This ETF Your Knight in Shining Armor? (Wall Street Journal)
-- New titans of Wall Street: how Jane Street rode the ETF wave to 'obscene' riches (Financial Times)
-- '100%' Yields Are Fueling a Retail Boom in New Quick-Buck ETFs (Bloomberg)
-- Wall Street Races to Launch Latest Cohort of Crypto-Spot ETFs (Bloomberg)
-- $300bn in ETFs affected by S&P indices reshuffle (Financial Times)
-Christine Idzelis
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(END) Dow Jones Newswires
October 10, 2024 18:52 ET (22:52 GMT)
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