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Is 60-40 the right mix of stocks and bonds?
hello! This week’s ETF Wrap will give you a look at the findings from Charles Schwab’s latest annual ETF survey as well as Thursday’s economic data shake-up in the bond market.
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A survey of Charles Schwab’s asset management business found that the volatile bond market has not disappointed the Millennial generation, especially as investors in that generation are increasingly turning to exchange-traded funds for fixed income.
David Bossett, managing director and head of equity product management and innovation at Schwab Asset Management, told MarketWatch during an interview Wednesday on the sidelines of the Schwab Impact 2023 conference that the survey revealed relatively higher use of fixed-income ETFs by Millennials. Philadelphia.
Schwab found that millennial ETF investors allocated an average of 45% of their portfolios to fixed income, compared to 37% for Generation X and 31% for Baby Boomers.
The US bond market has suffered widespread losses this year amid heavy volatility as interest rates continue to rise, following a steep decline for investment-grade bond ETFs due in 2022. Schwab’s survey, conducted from June 13 to June 28, included individual investors. Aged 25 and 75 with at least $25,000 in investable assets.
According to Botset, Millennials may be attracted to the higher yields now available in the bond market, as well as using ETFs for fixed income exposure after seeing the fund structure work well amid market volatility. Can be more comfortable.
He described Millennials as familiar with the ups and downs of markets, including the global financial crisis of 2008 and the COVID-19 crisis in 2020, as well as turbulent times such as the regional-bank failures earlier this year.
In general, investors prefer ETFs because they can easily trade in and out of them, but also because they are a tax efficient and low-cost way to diversify a fund portfolio, according to Botset.
Within fixed income, Schwab Asset Management announced in September that it had reduced the operating expense ratios for the Schwab High Yield Bond ETF SCYB and the Schwab US Tips ETF SCHP, bringing the fees for its entire fixed income ETF lineup to just three. The base number is done.
Is 60-40 the right mix?
According to a Schwab study, 63% of ETF investors view a traditional portfolio consisting of 60% stocks and 40% bonds as the right mix to meet their financial goals. The survey found that on average about 39% of their portfolio is in fixed income, with 61% in equities.
Some bond investors may be looking to “lock in rates” before the Federal Reserve lowers interest rates again if the economy weakens into a recession, Botset said. Meanwhile, the US economy expanded rapidly in the three months to September.
The market is largely expecting the Fed to keep its benchmark interest rate steady at its policy meeting next week, as the Bureau of Economic Analysis on Thursday estimated U.S. gross domestic product expanded at an annual rate of 4.9% in the third quarter Is.
“Our expectations are for slower GDP as the positive contribution from volatile net exports and inventories is unlikely to be repeated,” Lindsay Rosner, head of multi-sector fixed income investments at Goldman Sachs Asset Management, said in email comments Thursday. He said Goldman “will monitor growth in private domestic demand – consumption and investment – rather than headline GDP.”
‘The needle doesn’t move’
At last check, Fed-funds futures point to the central bank keeping its benchmark rate at 5.25% to 5.5% at its policy meeting ending Nov. 1 and for the remainder of 2023, according to the CME FedWatch tool. The Fed has aggressively raised its benchmark rate from near zero to a 22-year high in March 2022 after the last increase in July to curb inflation.
“The third-quarter GDP report does not move the needle for the November FOMC meeting, which is certainly a miss,” Rosner said. “High and holding, yes. High and hiking, no.”
Read: Why T. Rowe Price’s CIO thinks 10-year Treasury yields could keep rising – and how he’s positioning the markets
Bond ETFs were broadly rising Thursday afternoon as Treasury yields fell.
Shares of Vanguard Long-Term Treasury VGLT were up about 1.4%, while Vanguard Intermediate-Term Treasury ETF VGIT climbed 0.6% and the SPDR Bloomberg 1-3 Month T-Bill ETF BIL rose less than 0.1%, according to FactSet data. . On late afternoon business.
But the rise in yields this year has led to losses for many fixed income ETFs so far in 2023, with the iShares Core US Aggregate Bond ETF AGG down 2.9% based on total returns through Wednesday. Last year the fund, which tracks an index of U.S. investment-grade bonds, lost 13% in total, after losing 1.8% in 2021 on a total return basis.
The yield on the 10-year Treasury note BX:TMUBMUSD10Y fell 10.9 basis points to 4.843% on Thursday, its highest rate since July 2007, based on Dow Jones Markets data, citing levels at 3 p.m. Eastern time last week. Had reached.
Read: Yellen says she sees no signs of recession after GDP report
As always, here’s your look at the top- and bottom-performing ETFs from last week through Wednesday, according to FactSet data.
Top Performers %Performance ProShares Bitcoin Strategy ETF 20.8 Sprott Uranium Miners ETF 3.8 VanEck Vietnam ETF 2.8 Global X Uranium ETF 2.3 United States Natural Gas Fund LP 2.3 Source: FactSet data as of Wednesday, October 25. Start date October 19. Excluding ETNs and leveraged products. This includes ETFs traded by the NYSE, Nasdaq and Cboe with trades of $500 million or more
Bottom Performers %Performance AdvisorsShares Pure US Cannabis ETF -12.7 Invesco Solar ETF -8.8 iShares Mortgage Real Estate ETF -6.2 SPDR S&P Semiconductor ETF -5.9 WisdomTree Cloud Computing Fund -5.8 Source: FactSet data
Goldman Sachs Asset Management on Thursday announced the launch of the Goldman Sachs S&P 500 Core Premium Income ETF (GPIX) and the Goldman Sachs Nasdaq-100 Core Premium Income ETF (GPIQ). According to the announcement, the actively managed funds “seek to provide investors the opportunity to generate current income and growth through a dynamic option overwrite strategy.” YieldMax said Oct. 24 that it has launched the YieldMax mRNA Options Income Strategy ETF MRNY, which targets Moderna Inc. Providing monthly income through synthetic covered call strategy on MRNA. This fund will not invest directly in the biotechnology company.
weekly etf reads
Invesco’s Paglia (MarketWatch) says bond ETFs are seeing a ‘sharp increase’ in investor demand after yields rose in the volatile fixed income market. Moderna’s stock breaks record for fall as Cathie Wood’s ETF stake rises by more than $4 million (MarketWatch) Bitcoin surges to nearly 18. ETF optimism on the rise – at month’s highest (MarketWatch) US SEC has 8-10 filings on potential Bitcoin ETF products (Reuters) ETFantasmagoria (Financial Times) Goldman’s JPMorgan copycat launches in ‘early days’ of ETF boom ( Bloomberg) A Small ETF Challenges Historic Bond Defeat With 200% Returns (Bloomberg) How ETFs Are Prepared for El Niño Disturbance (Financial Times)
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