The U.S. economy defied expectations in 2023, avoiding a recession thanks to lowered inflation and a strong labor market. And after an abysmal year for fixed income in 2022, fixed income markets rebounded last year.
Within fixed income, U.S. high yield experienced the best performance for the second consecutive year. And within high yield, CCC-rated bonds and the consumer cyclical sector drove much of that growth.
While a modest economic slowdown may occur in 2024, the U.S. economy is likely to remain resilient. The Fed is ending its rate hikes. Unemployment is at historic lows. And corporate balance sheets across high yield seem well-positioned to manage a potential economic downturn.
So, in such an environment, now may be a good time for investors to increase their fixed income allocations.
See more: “High Yield Looking Less Risky These Days”
Seeking Outperformance Through Precise Exposure
According to BondBloxx, bonds could provide “attractive forward returns in the coming year.”
“Within fixed income, we believe investors will need to look beyond broad-based benchmarks to establish more precise exposures as a way to seek outperformance,” BondBloxx wrote.
U.S. high yield bonds offer appealing yields, presenting investors with higher income potential. They can also provide a substantial buffer against potential spread widening, with lower anticipated volatility compared to stocks.
For investors looking to up their allocation to high yield, BondBloxx has a few options. For example, the fixed income manager has a suite of seven sector-specific high yield bond funds to choose from. The sectors they target include energy, consumer noncyclicals, and core industrial, among others.
Or, if investors prefer to target high yield via ratings, BondBloxx offers three ratings-specific high yield bond ETFs that include the BondBloxx CCC-Rated USD High Yield Corporate Bond ETF (XCCC).
In addition, investors looking to maximize total return via an active high yield sector rotation strategy may consider the BondBloxx USD High Yield Bond Sector Rotation ETF (HYSA).
BondBloxx is a rapidly growing fixed income manager with more than $2.5 billion in assets across 20 ETFs. VettaFi’s Head of Research Todd Rosenbluth praised the firm’s offerings, calling BondBloxx “one of the more innovative providers of fixed income ETFs.”
For more news, information, and analysis, visit the Institutional Income Strategies Channel.