Fixed Income ETFs
Achieve fixed income portfolio management faster and more efficiently, including fixed income ETFs, with BondIT. Our asset management software platform is designed to increase business efficiency and manage portfolio optimization automatically, reducing costs and resourcing time. Where it has traditionally taken hours of analysis, BondIT returns a range of fixed income options and client-specific proposals in a matter of minutes. Completely data agnostic, BondIT integrates seamlessly with any enterprise system and is capable of returning instantly compliant proposals as well as automating internal business workflows. Use our standard range of fixed income analytics or choose a bespoke range of analytics tailored to your clients’ investment objectives and individual business goals.
BondIT has been designed using the latest asset management software development methodologies and data science to provide an easy to use interface and powerful investment optimizing tool.
What is a fixed income ETF?
Fixed income ETF (Exchange Traded Funds) are funds which trade on a stock exchange, just like regular shares. They are designed to combine the fixed income investment advantages of a managed fund while remaining as easy and cost-effective as share trading. ETFs can be used for cost-effective access to markets and asset classes which might not otherwise be accessible for some investors such as debt securities, derivatives, currencies and commodities. Each unit of an ETF represents a collection of securities which often replicates the performance of a specific index or benchmark. A fixed income ETF trades at a unit price close to the net asset value of the underlying portfolio. Like ordinary shares, they come with a trading code and the investor is free to enter and exit a fixed income ETF as they choose, subject to liquidity. Codes are listed on the US Equity Index.
These types of fixed income securities are a great way to diversify investment portfolios and BondIT offers a single and powerful asset management tool designed to optimize portfolio management. Whether investors are interested in individual bonds or fixed income ETFs, BondIT offers a cost-effective solution to managing client-specific needs.
Other types of fixed income bond investments include municipal bonds (government bonds) and the corporate bonds market. Government bonds offered by U.S. Government agencies including the U.S. Treasury. Treasury bonds are considered low risk fixed income options, but the risk is directly correlated to the investment yield. Low risk investments typically pay lower yields than fixed income high yield investment options. Just because the fixed income risk is lower doesn’t mean that there are no risks at all associated with investing in government bonds.
Interest rate risk is one of the largest risks to investment-grade government bonds. This occurs when the federal reserve lowers interest rates during the term of a bond. The bond can then possibly be called early, the capital investment returned to the investor and the bond issued again a new, lower interest rate. Fixed income securities are essentially debt securities. Bonds are issued to investors by organizations – both government and private – in need of cash flow. The bond is a loan of cash offered at a fixed or floating rate of interest payable regularly throughout the term of the bond. When the bond is called early, the investor misses out on the projected income and can choose either to purchase the new bond at the lower rate of interest or not.
Tax risk is the next biggest risk associated with these types of fixed income instruments. Government bonds are usually offered as tax-exempt, meaning that the income generated from them is not subject to income tax. This makes these types of bonds highly desirable. However, their tax status is not always guaranteed. Changing governments can amend which bonds are considered exempt from tax and which are not. This means that some types of fixed income assets can change from tax-free to taxable before the bond matures. In this instance, the investor has the option of retaining the bond fund or they can choose to sell it on the secondary market. It is unlikely, however, that they will be able to offload the bond for the same price that they purchased it for. Fixed income ETF dividends are treated as either income or capital gains.
Inflation risk is the final big risk associated with government bonds and this can also apply to the corporate bonds market. Inflation risk is the risk that the rate of inflation will increase so quickly that it matches or exceeds the interest rate on the bond. This effectively means that the income generated from the bond is not as valuable as originally projected.
When it comes to choosing which corporate bonds to buy, there are both investment-grade bonds and non-investment grade bonds (or junk bonds). Because bonds are rated by creditworthiness, the lower the credit rating, the higher the risk. Just like personal lending, lending options are offered at higher interest rates when the risk of default is higher. For the investor, this means potentially a fixed income high yield investment option but with a high risk of losing the capital investment, they put forward. In some circumstances, junk bonds can turn into angel bonds as the bond issuer’s credit rating increases over the term of the bond.
Fixed income ETFs pay out regular coupon payments (like individual bonds) but the coupon value may vary month to month. The reason for this is that some bonds in the ETF may be due a coupon payment while others may not be due yet. This differs from other types of bond investments which typically payout every six months. Rather than allowing bond terms to mature, bonds are bought and sold as they reach their maturity date.
A balanced investment strategy will include a range of investments including high yield bonds as well as more conservative investment options and fixed income ETFs. BondIT has been designed to assist with the optimization of bond allocation and how to rate bonds. Portfolio managers can input client-specific investment objectives to better manage individual portfolios depending on the needs of the client. This might mean custom-immunizing pre-retirement liabilities such as the deposit payment on new homes or vacation properties as well as college tuition funds for children and grandchildren. Once retirement age has been passed, clients are then more focused on reliable income generation for the term of their retirement. BondIT works to develop new investment proposals based on changing circumstances as well as game-changing, advanced laddering.
View aggregate risk characteristics using BondIT’s clear and easy to navigate dashboard view. From the dashboard, you can review and examine investment exposures across the entirety of your portfolios or only a subset of them. Drill into individual bonds and characteristics to identify the underlying source exposure and then use our smart algorithms to generate suggested fixed income trades. Compare BondIT’s analysis with your ideas to develop the best strategy for reallocating exposures in fixed income bonds.
To find out how we can help your business increase efficiency and reduce time and resourcing costs, contact one of our consultants today. We’ll show you exactly how BondIT can be customized to meet your business needs and manage the needs of your client, meeting and exceeding their investment objectives for their complete portfolio management, including fixed income ETF options.