Total exposure to bonds with flexibility of active management



Getting full exposure to bonds doesn’t mean investors have to sift through the wide range of bonds in the debt market. An active management strategy allows ETF investors to gain full exposure to bonds in a fund through the Invesco Total Return Bond ETF (GTO), which does all the work for them.

GTO, an actively managed mid-term bond ETF for investors seeking monthly income and total return opportunities. The fund will invest at least 80% of its total assets in fixed income instruments of various maturities and of all credit qualities.

As of December 15, the fund mainly held government debt of the highest quality. That said, GTO investors have peace of mind that the fund is not very risky with high yield debt.

In addition, its main asset is the CBOT 2-Year Treasury Notes, which limits duration risk by incorporating short-term bonds. Overall, there is a good mix of government bonds covering the short and long ends of the yield curve.

GTO chart

The GTO ETF and inflation

2021 marks an inflection point for the bond markets. Interest rates have been kept low for some time and the Federal Reserve seems predisposed to keep them that way.

Nevertheless, an enemy of the bond markets could emerge as mentioned in a Financial Times article:

“Bond investors are prepared for the risk that 2021 could herald the return of a long-dormant enemy: inflation,” the article said. “The price of government bonds has skyrocketed this year, in large part due to the huge bond buying programs undertaken by central banks to mitigate the financial impact of the pandemic. Investors assume this support will continue, even as economies emerge from their 2020 slump. ”

“A rebound in inflation, elusive since the 2008 financial crisis, could disrupt these widely held expectations by making the debt market less attractive,” the article adds. “Bonds generally provide investors with a fixed stream of interest payments, which become less valuable as the overall cost of goods and services accelerates.”

“Inflation that remains low and behaves well is the basis on which everything is currently valued in the markets,” said Karen Ward, chief market strategist for Europe at JPMorgan Asset Management. “Investors’ assumption is that central banks can remain accommodative for much of the economic recovery. If inflation picks up unexpectedly, it would call into question the whole view of the market. “

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