Due to COVID-19, active management of credit ETFs will remain in fashion

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TThanks to massive government stimulus measures and Federal Reserve asset purchase programs, stability has returned to credit markets. With this, there is an opportunity for active managers to add value for investors, especially in a low yield environment.

Fortunately, analysts believe that credit stability will be maintained in the short to medium term. Falling default rates and a growing number of lapsed angel issuers positioned to regain investment grade status underscore the attractiveness of today’s credit markets.

“We have seen a return to credit stability in the first two quarters, and we expect this to continue for the rest of the year,” notes S&P Global Ratings. “The rating spread remains strong and the negative outlook represents around 6% of total ratings, up from around 8% last year around the same time. “

In the first half of 2021, active fixed income managers performed admirably, beating benchmarks across the bond landscape, with emerging market debt being the exception. Conversely, active equity managers have not been as impressive as their fixed income counterparts.

An imminent specter

This is one of the reasons investors may want to consider active management with fixed income securities as 2021 progresses. Another is the ever-looming specter of the coronavirus pandemic.

“Despite these generally positive trends, challenges remain as the pace of vaccination has slowed and COVID variants have accelerated in the United States and around the world. The recent increase in the delta variant again highlights the regional variations and uneven health outcomes that we have seen throughout the pandemic, ”according to S&P Global.

Supporting the credit outlook is S & P’s recession outlook, which is between 10% and 15%, the lowest level in six years.

That’s positive, but economic growth and the weak recession could give the Federal Reserve leeway to accelerate its schedule of interest rate hikes, something many market watchers are already discussing. That remains to be seen, but what is not up for debate is that more Fed governors are comfortable moving closer to rate hikes,

For its part, S&P expects the first rate hike in the first quarter of 2023, followed by another in the third quarter of this year and two more in 2024.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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