Thesis

BlackRock Core Bond Trust (NYSE: BHK) is a closed-end, fixed-income fund whose primary objective is current income. The fund was launched in 2001 and seeks to achieve its primary objective by investing primarily in a diversified portfolio of high quality bonds. Portfolio holdings may include corporate bonds, US government and agency securities, and mortgage securities. At least 75% of its total assets will be invested in high quality bonds. Up to 25% of its total assets may be invested in bonds which are then rated Ba/BB or lower.

The vehicle currently has a high allocation to Treasuries and agency mortgage-backed securities (36%), investment grade bonds (24.9%) and high yield bonds (15%). Given its mandate and current portfolio structure, the fund is primarily driven by Fed rates and policy. We are currently in an incipient tightening cycle with market implied rate hikes for the rest of the year hovering above 6 following the Fed’s action yesterday. With 10-year rates currently trading around 2%, we can see a substantial upside depending on inflation readings and the Fed’s willingness to tackle it aggressively. The fund is down more than 20% since the start of the year due to its very high duration of 10.25 years and there is still room if rates indeed follow the path of 2018 when they peaked at around 3% (for the 10 annual returns).

BHK is a good long-term vehicle, however, with solid total returns that stand at 5.5% and 6.2% over a 5- and 10-year horizon. Returns were obtained with a Sharpe ratio of 0.61 and a standard deviation of 7.61 (both measured over a 5-year look-back period). We like this long term fund and think it is a solid buy and hold, but we are currently in the worst environment for this long term rates vehicle, namely an aggressive tightening cycle. With inflation creeping up and at historic highs, it’s unclear how far high rates will have to go to bring us back to a neutral inflationary environment. BHK should see more rate weakness and maybe even a bit more of the widening of the NAV discount. Although we like the long-term fund, we don’t think it’s prudent to stick with the name now and expect more weakness to come. We rate this name a To sell currently to be reviewed in the summer months when we should have more clarity on the Fed’s future actions.

Assets

The fund is currently overweight treasury bills and investment grade bonds:

We can see that treasury bills and agency mortgages make up over 36% of the portfolio, making the vehicle very sensitive to rate movements due to inflation, rate hike expectations and the possibility of a recession in the next few years.

Analysis of the ratings paints a similar picture:

Government and government equivalent securities fall into the AAA bracket, while the rest of the ratings analysis shows that the vast majority of the portfolio is investment grade.

The portfolio has a very high weighted average life and maturity profile:

We see that the tranche with the most assets is in the 20+ year segment, which explains the very high duration of the portfolio, which exceeds 10 years:

Credit and market risk

As we observed in the Holdings section, the fund has very little credit risk, with only around 23% of its assets in below investment grade bonds. Moreover, half of this allocation is in the double BB tranche, which is the safest tranche of high yield credit. The main risks of this fund are market risk, and more specifically interest rate risk.

The fund has a very high duration of 10.25 years and has seen its net asset value and performance outlook plummet this year due to rising interest rates. The fund is down more than 21% from a price point of view this year and it could drop further depending on inflation performance and the Fed’s stance.

From a market risk perspective, there is also a small component of credit spread risk associated with the investment grade bond portfolio, where in a recessionary environment we may see those spreads widen, but this will be offset by the compression of the risk-free rates at time, and more than offset by the sheer compression of the yield on treasury bills and agency mortgages.

Performance

The fund is down more than 20% based on year-to-date prices:

The increase in yields this year, and in particular 10-year rates, has weighed heavily on the fund since the start of the year. The fund has a very long duration and is driven by rate movements, and a Fed tightening environment is the worst type of market setup for this vehicle. If rates continue to rise, expect this fund to continue to lose value, both in terms of net asset value and market price.

Longer term, the picture is not bleak, with the fund showing stability and resilience in a rolling currency cycle setup:

When you switch to a 5-year total return chart, we can clearly see how the dividend yield gives us that nice annual return of around 6% that we see on a 5-year basis:

Premium/Rebate to NAV

The fund typically trades at a discount to net asset value:

We can see from the matrix above (where green indicates a discount and blue a premium to NAV) that the fund typically trades at a discount to NAV. 2021 was an outlier for the fund, when we saw a premium to net asset value thanks to a zero rate policy from the Fed and investors looking for yield. We are now back to a more normalized rate environment and the fund has already started trading at a discount to the net asset value, which could approach the extreme level of 8-9% if inflation does not subside. not and that investors continue to flee the duration and the fixed rate. cash assets.

Conclusion

BHK is a fixed income CEF focused on treasury bills and investment grade bonds. Yields on these asset classes are rate driven, and BHK does not disappoint with a high duration of over 10 years. Having lost more than 20% on a price basis in 2022 given rising 10-year yields, the vehicle is likely to weaken further as rates rise, as we saw in 2018 when 10-year yields peaked at 3%. This year has seen strong outflows from investment grade bond funds and this weakness in outflows is expected to continue. We expect a lower net asset value and lower BHK price over the next few months, due to higher yields that are far from their highs in this tightening environment. We rate this name a To sell currently to be reviewed in the summer months when we should have more clarity on the Fed’s future actions.

GREENWICH, Conn., March 16, 2022 /PRNewswire/ — The number of digital assets surpassed 18,000 in March, trading on 460 exchanges, with a market capitalization of $1.75 trillion. President Biden’s executive order was a statement to the world that United States plans to be a strategic leader in integrating digital asset technologies into the mainstream economy. Investors are alert to the opportunity; however, investors are also challenged to bring order to the chaos of the rapidly growing ecosystem. Of the more than 18,000 workers, how many will survive? Who can choose winners and losers? Will smaller projects take market share from traditional markets and native digital asset pioneers? Our conversations with investors made it clear that there was a gap in the market. Investors craved a dynamic, institutional digital benchmark that did not exist.

So we built it.

One River Digital Asset Management and MVIS Index Solutions are pleased to announce the creation of One River Digital Asset Management Heart Index (ticker: ORDCI) and One River Digital Waist inclination Index (symbol: ORDST). These indices respond to the basic wants and needs of investors: a dynamic benchmark where assets adapt fluidly to the ecosystem; a systematic, rules-based approach that meets the highest regulatory standards; indices that give investors the opportunity to direct exposure to promising assets; and indexes constructed at the institutional scale.

the Heart and Waist inclination the indices are underpinned by One River Digital’s disciplined, institutional approach to asset management, developed over decades of collective experience. To be eligible for the index, digital assets must meet both specific fundamental and market-based criteria. As the industry matures and more workers meet qualifications, the Heart and Waist inclination the indices will grow to continuously represent the highest quality evolving segment of the digital asset markets.

A digital river Heart and One River digital Waist inclination are both currently available to institutions through an SMA at Coinbase Prime and will soon also be available in blended institutional funds.

“Investors are overwhelmed with choice and the speed of change in the digital ecosystem. Building dynamic indices gives our clients a benchmark that didn’t exist before,” said Eric PetersCEO and CIO of One River.

One River digital Heart The index allows investors to access and track this dynamic market with market capitalization weightings familiar to traditional indices. Investors preferring a more diversified set of holdings will be attracted to the One River Waist inclination Index, where the ranking methodology skews the weight away from the most important assets. Today, Bitcoin represents 64% in the Heart Index against 36% in the Waist inclination.

“Institutional investors are used to separating alpha from beta. Our indices allow investors to better hone their exposures. Clients can now build better portfolios, exposures that represent their needs for return, risk, liquidity, security, transparency and fees Our Digital Waist inclination Index is the first of its kind, utilizing techniques and insights gained from decades of experience managing institutional equities,” said Sebastien BeaPresident of One River Digital.

One River Digital has partnered with MVIS Index Solutions GmbH (MVIS), an industry-leading regulated index provider, to design and implement its indices. As the third-party index administrator, MVIS reviewed and approved the index methodology. MVIS will provide ongoing, independent index monitoring using CCCAGG pricing provided by CryptoCompare.

“MVIS was a great partner for us as we researched and designed the One River Digital Heart and One River Digital Waist inclination Clues. Their robust processes and experienced team ensure that the highest level of care and integrity will be taken in maintaining the indices in the future,” said Paul Ebnerportfolio manager and researcher in systematic digital strategies.

“The unique digital river Heart and One River Digital Waist inclination The indices are the start of a wide range of investment solutions that will be provided through the ONE Digital SMA platform, powered by Coinbase Prime,” said Jasmine Burgess, Chief Operating Officer and Chief Risk Officer of One River Digital. “Mixed institutional fund versions of both indices will also be available in the near future.”

One River digital Heart and One River Digital Waist inclination The indices are rules-based indices calculated in USD. Both indices are revised on a quarterly basis. Index details, including methodology details and data sources, are available on the MV Index Solutions website:

https://mvis-indices.com/indices/customised/One-River-Digital-Core
https://mvis-indices.com/indices/customised/One-River-Digital-Size-Tilt

About One River Digital Asset Management:

One River Digital Asset Management is a leading institutional digital asset manager, providing investment strategies and infrastructure to bridge digital and traditional markets. One River Digital completed the first major institutional asset allocation to digital in November 2020*. The company is backed by its strategic investors, leaders in digital, finance and asset management, including Coinbase, Goldman Sachs, Liberty Mutual and others. The firm is a subsidiary of One River Asset Management, an innovative investment manager dedicated to delivering high-conviction absolute return strategies that seeks to help its clients build superior portfolios. He sees the world in a time of major economic, political and political transition, with an investment landscape changing in ways that will make the next decade look profoundly different from the decade before. Its strategies are designed to take advantage of this dynamic environment while providing strong diversification benefits to traditional investment portfolios. Each is developed and managed by its diverse team of investment professionals with deep expertise in volatility, macro, inflation, digital assets and systematic trading/investing. One River manages approximately $2.5 billion in institutional assets. The company is headquartered in Greenwich, CT and was founded in 2013.

*For more details on our digital allocation in November 2020see here: https://blog.coinbase.com/hedge-fundscontinue-to-look-to-coinbase-for-innovativeportfolio-solutions-d3a35bc16874

About MVIS:

MV Index Solutions (MVIS®) develops, monitors and licenses MVIS Indices and BlueStar Indices, a selection of targeted, investable and diversified benchmark indices. Indices are specially designed to underpin financial products. MVIS indices cover multiple asset classes including equities, fixed income markets and digital assets and are licensed to serve as the underlying indices for financial products. About USD $34.64 billion of assets under management (at March 4, 2022) are currently invested in financial products based on the MVIS/BlueStar indices. MVIS is a VanEck company.

SOURCE One River Digital Asset Management

There is a lot to unpack in this question. The short answer is, pretty good.

The major stock indices are, as I say, still reeling, with the strong-growing Eurostoxx and Nasdaq both down 15% year-to-date. The global high yield market is down nearly 6.3% year-to-date in sterling terms. Digging deeper, the US market is down 4.8%, while European high yield is down 5.8%. Given the proximity of the conflict and Europe’s dependence on Russian raw materials, this difference is not surprising.

Indeed, the US high yield market remains far more concerned about rising interest rates and duration risk than overall demand in the economy and the potential for increased defaults. An illustration of this point is the continued outperformance of low-quality CCC bonds. High yield market commentators have argued for months, if not years, that CCC bonds are a good place to hide from rising interest rates. The high coupons on offer are naturally more resilient to rising interest rates than the lower coupons you typically get from, for example, BB-rated bonds.

Of course, with commodity prices exploding, the large cohort of commodity sector bonds in the CCC-rated US portion of the market are benefiting. With fixed and limited bond upside, especially when the market has already largely priced in their current good fortune, we don’t think this is a theme that bond investors should embrace too easily. We should always keep in mind the default bias towards the lower quality segments of the market, illustrated in Chart 1 below. If an investor wants to bet on thematic and cyclical companies, it is best to do so in the stock market.

There is no such outperformance of CCCs in Europe, where the specter of stagflation is arguably greater. Stagflation is when you have both inflation and a declining economy. Inflation was already proving desperately persistent before the commodity price boom and will, of course, be exacerbated if commodity prices remain high. Meanwhile, European manufacturing and discretionary consumer spending will likely both be hit. The inflation part of this problem means that central bankers will be reluctant to reduce monetary policy as they normally do in a downturn.

To a large extent, these fears carry over to European high yield spreads, the risk premium we are paid for the risk of default that accompanies high yield bonds. The European high yield spread – as shown in Chart 2 – has now risen to 4.8%, well above the long-term average of 4.1%, and we see this as an attractive risk offset. .

Note that US high yield spreads are still below the long-term average, but with the number of interest rate hikes embedded in US government bonds, the overall return is in line with the long-term average. Therefore, we also like the US high yield, especially considering the likely resilience of the US in the face of a continued escalation in Ukraine. In our view, there is much less risk of a default spike in the US.

Our high yield exposure is currently split evenly between the US and Europe (including the UK). We have low exposure to cyclical stocks and companies with high energy production costs. We don’t have any airlines, which are so exposed to fuel costs. The quality bias we have in our process means that we are very light on CCC risk and have no noticeable risk in emerging markets. Additionally, our quality bias means we also look for companies with pricing power and resilience, two operational qualities that are the best defense in tougher economic times. With these features, our high yield holdings have an average gross redemption yield of approximately 6.7%.

Some may counter that if you’re optimistic about defaults, as we are, why not own more CCC and increase your yield? The main reason we are generally optimistic about defaults is that a small proportion of global high yield debt is due in the short term: 7% in 2022 and 16% in 2022 and 2023 combined, as shown in the Chart 3. Although, if you’re old enough, you’ll remember that the high yield market closed to new issues for 18 months during the global financial crisis! To be clear, we don’t believe this event will cause such a level of tension in the market. Looking at Chart 1, we still believe that a quality bias is the best way to approach the high yield market over the long term.

Many customers ask about liquidity. The honest answer is that in times like this, liquidity is more difficult when trying to access an offer. Often the selling price is lower than what is shown on our Bloomberg screens (and therefore factored into market prices). We often see more liquid large corporate bonds indicating greater volatility than parts of the market with, in our view, higher risk of default.

During longer periods of market stress, this price dynamic tends to play out and the lower quality and less liquid segments of the market catch up in terms of market price. Our “big, liquid, listed” mantra means that we expect to be less affected than many during such times.

The corollary is that longer periods of market stress create opportunities for valuation, as the compensation for future defaults – the spread – often overreacts. We don’t think this time is any different.

For a full list of common financial words and terms, see our glossary here.

Main risks

Past performance is no guarantee of future performance. The value of an investment and the income from it can go down as well as up and is not guaranteed. You may get back less than you originally invested. The issue of units/shares of Liontrust Funds may be subject to entry charges, which will have an impact on the realizable value of the investment, particularly in the short term. Investments should always be considered long term. Investments in funds managed by the Global Fixed Income team involve foreign currencies and may be subject to fluctuations in value due to fluctuations in exchange rates. The value of fixed income securities will fall if the issuer is unable to repay its debt or has its credit rating reduced. Generally, the higher the perceived credit risk of the issuer, the higher the interest rate. Bond markets may be subject to reduced liquidity. The Sub-Funds may invest in emerging markets/weak currencies which may have the effect of increasing volatility. Certain Funds may invest in derivatives. The use of derivatives may create leverage or leverage. A relatively small movement in the value of the underlying investment of a derivative instrument may have a greater impact, positive or negative, on the value of a fund than if the underlying investment were held instead. .

Warning

This is a commercial communication. Before making an investment, you should read the relevant Prospectus and Key Investor Information Document (KIID), which provide full details of the product, including investment costs and risks. These documents can be obtained free of charge at www.liontrust.eu or directly from Liontrust. Always research your own investments. If you are not a professional investor, please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.

This should not be construed as investment advice in any product or security mentioned, an offer to buy or sell units/shares of the Funds mentioned, or a solicitation to buy securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The promoted investment relates to the units of a fund, and not directly to the underlying assets. It contains information and analyzes believed to be accurate at the time of publication, but subject to change without notice. Although care has been taken in compiling the contents of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including to external sources (which may have been used) which have not been verified. It shall not be copied, transmitted, reproduced, disclosed or otherwise distributed in any form by fax, e-mail, oral or otherwise, in whole or in part without the express prior written consent of Liontrust. Always research your own investments and if you are not a professional investor, please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.

Friday, March 11, 2022, 1:19 PM

Floats historically outperform their fixed rate counterparts when interest rates rise, as evidenced by the past two months. But given the extent of the repricing that has already occurred in fixed coupon instruments, we believe it is less likely that credit-linked floats will retain such a performance advantage over the next 6-12 month.

Benefits for investors

Float prices are better protected from changes in interest rates because income distributions reset periodically by adding a fixed spread to the benchmark rate. With the exception of floats with coupon limiting features (i.e. floors), the interest rate risk on an FRN approximates the duration of the underlying benchmark rate. Common benchmark rates include the London Interbank Offered Rate (Libor) for older securities and the Guaranteed Overnight Funding Rate (SOFR) for recent issues. Because SOFR is risk-free and Libor includes an element of credit risk, the majority of new SOFR-linked senior loans this year include a credit spread adjustment, or CSA, as an additional component of the rate of credit. reference.

This stems from the syndicated nature of how Senior Loans are arranged. In contrast, more traditional IG FRNs were issued without adjusting credit spreads.

Performance

Not only do floats have a shorter interest rate duration, but they also have a lower credit spread duration, which means their prices are also less sensitive to changes in spreads. This tends to dampen their volatility during periods when interest rates or credit spreads rise and fall, resulting in less dispersion of returns compared to their non-floating counterparts.

When considering the relative attractiveness of FRNs versus fixed rate securities, the starting point matters. At no time has this been more relevant than in today’s market where the relative outperformance of floats has been striking, with the exception of $25 preferred stocks. Consider that year-to-date, HY bonds are down 3.6% as of Feb 28, while 5-year Treasuries are up 46bp and increased volatility has widened HY spreads by 67 bp. For loans, their spreads are around 30 basis points wider, but total return is roughly flat, in line with a key theme in 2022: earning carry while protecting principal. A similar trend occurred in the IG, with FRN IG roughly flat over the year while the 1-5 year IG is -2.1%. How did the float’s performance fare when the Fed actually raised rates the last time? To answer, let’s go back to the period from the end of 2016 to the end of 2018 marked by a series of successive increases. Interestingly, floats actually underperformed their fixed-rate counterparts for about 12 months before catching up, so a similar performance was seen over the two-year period. The eventual catch-up in floats stemmed from both higher coupon reset rates and the direction of credit spreads, which tightened through 2017 but widened in 2018. With a shorter spread duration , floats outperformed in 2018 as spreads widened.

Take away food

The low duration of free floats can help reduce the price sensitivity of a bond portfolio to changes in interest rates and credit spreads. Given the sharp rise in interest rates, the total return benefit for floats has already been realized. The next phase of the floats’ value proposition will likely come from a combination of their lower duration and higher earnings as the Fed begins raising rates later this month.

Senior Loans have been among the most popular means of gaining floating rate exposure in fixed income credit segments. We continue to appreciate this asset class, but it is clear that the relative valuation against HY bonds has rebalanced.

For exposure to IG FRNs, total return-focused investors can consider the ETFs available on the UBS platform. For buy-and-hold investors, we would be inclined to choose fixed coupon bonds with a maturity comparable to 5 years issued by American banks, whose yields are more attractive after the revaluation of rates on this part of the curve.

Within the adjustable-rate preferred shares, a distinction should be made between the more volatile USD 25 shares listed on the stock exchange and the more defensive USD 1,000 shares.

Main Contributor: Barry McAlinden

For more information, contact your UBS financial advisor for a copy of Fixed Income Strategist: Revisiting credit floaters.

This content is a product of the Chief Investment Office of UBS.

The global effort to decarbonize the economy could be another long-term tailwind. Industrial metals like lithium and cobalt are seeing new demand as the world builds green infrastructure and more electric cars. Investments in fossil fuels are declining, but renewable sources are not yet ready to take their place.

Energy prices are likely to remain high, while supplies of industrial metals and agricultural products, both of which require large amounts of energy to produce, are likely to decline.

“This domino effect is doing the rounds of the entire commodities landscape right now,” says Jason Bloom, head of fixed income and alternative ETF product strategy at Invesco.

If you don’t own commodities due to their lagging performance over the past decade, it might be time to reconsider. “Commodity cycles tend to be longer in nature,” says Ed Egilinsky, head of alternative investments at Direxion. “We are still in the early innings of a supercycle.”

Unless you are prepared to trade commodity futures, mutual funds and exchange-traded funds are the most convenient way to invest in this asset class. Year-to-date, US commodity funds have generated an average return of 17%, while stocks and bonds are down. Commodity ETFs alone have seen nearly $9 billion in net asset inflows this year, according to FactSet.

Choosing a commodity fund can be difficult. Some bet on a particular commodity, while diversified portfolios could dampen volatility and reduce risk. But there is a wide variation in what they hold and in how much. Investors must choose carefully.

Largest commodity index ETF, $7.5 billion

Invesco Optimum Yield Diversified Commodity Strategy No K-1
(ticker: PDBC), holds more than half of its holdings in energy futures such as oil and natural gas, with the rest of its weighting split between metals and agricultural commodities. It worked well over the past year as energy prices soared. The fund has gained 55% in the past 12 months, beating 90% of its peers, according to Morningstar.

But some investors might want a more diversified basket instead of a proxy for energy, says Blair duQuesnay, investment adviser at Ritholtz Wealth Management. Commodities are often used to diversify a portfolio due to their low correlation with stocks and bonds. A fund heavily weighted in energy does not necessarily offer such advantages, she notes.

This is why actively managed commodity funds often reduce their exposure to energy and look for opportunities elsewhere. The $3.5 billion

First Trust Global Tactical Commodities Strategy
ETF (FTGC) has less than a third of its assets in energy and holds nickel and platinum futures. The $8.2 billion

Pimco CommodityRealReturn Strategy
(PCRAX) invests in carbon credits created by cap and trade programs in California and Europe.

The $300 million

WisdomTree Enhanced Commodity Strategy
ETF (GCC) even added a 3% position in Bitcoin futures last year, the first US ETF to do so. “Bitcoin, with its fixed supply, competes as a next-generation store of value like gold,” says Jeremy Schwartz, global chief investment officer at WisdomTree.

Mutual funds often charge higher fees than ETFs or have high sales charges. The Pimco fund, for example, has an expense ratio of 1.44% and an entry fee of 5.5% for investments below $50,000. ETF Invesco only charges 0.68%, while ETF First Trust and WisdomTree charge 0.95% and 0.55% respectively and charge no fees.

When buying commodity funds, investors should look for those that maximize “rolling yield” – the cost or benefit when expiring futures contracts are replaced by longer dated contracts. If a commodity is in contango, meaning the futures prices are above the spot price, rolling the contracts would cost money. Conversely, if the commodity is in backwardation, meaning the spot price is higher than the futures, it would generate positive returns.

While some funds automatically roll over their contracts to the first month on a fixed date, others aim to minimize costs and maximize returns by contracting with the lightest contango or largest offset at the best possible time. This means that these funds can hold contracts further down the curve than futures, which tend to be less volatile but deviate further from spot prices.

Over the past decade, thanks to falling spot prices and the constant contango of many commodities, contract turnover has cost the Bloomberg Commodities Index more than 7% annually, Schwartz says.

Today, spot prices are rising, contract rollovers are generating returns, and even the collateral used for futures positions – typically Treasury bills or short-term commercial paper – could start to generate higher returns. high as the Federal Reserve raises interest rates. “We are clearly seeing the reversal of a very long trend of poor commodity performance,” duQuesnay said.

Yet commodities can become very volatile, even with their long-term tailwinds. “Commodities are always vulnerable to economic and demand shocks,” Bloom says. “If you get another variant of Covid-19 that brings the economy to a halt again, or if the Fed overdoes the rate hikes and drags the economy into a recession, that would be very negative for commodity prices.”

Investors must be prepared to overcome obstacles.

Write to Evie Liu at evie.liu@barrons.com

Western Asset Municipal High Income Fund Inc. (NYSE:MHF) declared a monthly dividend on Friday, February 18, reports The Wall Street Journal. Investors of record on Monday, May 23 will receive a dividend of 0.0198 per share from the financial services provider on Wednesday, June 1. This represents an annualized dividend of $0.24 and a dividend yield of 3.21%. The ex-dividend date is Friday, May 20.

The Western Asset Municipal High Income Fund has cut its dividend payout by 15.2% over the past three years.

Shares of MHF rose $0.01 on Friday, hitting $7.41. 15,818 shares of the stock were traded at an average volume of 36,739. The stock’s 50-day moving average is $7.70 and its two-hundred-day moving average is $8.02. The Western Asset Municipal High Income Fund has a 1-year low of $7.21 and a 1-year high of $8.91.

Several institutional investors and hedge funds have recently changed their positions in the stock. Morgan Stanley increased its stake in shares of Western Asset Municipal High Income Fund by 3.1% during the third quarter. Morgan Stanley now owns 454,667 shares of the financial services provider valued at $3,610,000 after purchasing an additional 13,872 shares during the period. Wells Fargo & Company MN increased its stake in Western Asset Municipal High Income Fund by 3.5% during the second quarter. Wells Fargo & Company MN now owns 263,688 shares of the financial services provider worth $2,231,000 after purchasing an additional 8,987 shares during the period. NewEdge Advisors LLC bought a new position in Western Asset Municipal High Income Fund during the fourth quarter for a value of approximately $196,000. LPL Financial LLC increased its stake in Western Asset Municipal High Income Fund by 25.0% during the third quarter. LPL Financial LLC now owns 14,995 shares of the financial services provider worth $119,000 after purchasing an additional 3,000 shares during the period. Finally, Susquehanna International Group LLP bought a new position in Western Asset Municipal High Income Fund during the fourth quarter for a value of approximately $84,000. 19.03% of the shares are currently held by institutional investors and hedge funds.

Western Asset Municipal High Income Fund Company Profile

Western Asset Municipal High Income Fund Inc is a closed-end, fixed-income mutual fund launched and managed by Legg Mason Partners Fund Advisor, LLC. It is co-managed by Western Asset Management Company. The fund invests in US bond markets. It invests primarily in medium to long-term municipal debt securities issued by state and local governments, including the United States.

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Jhe Consumer Price Index report was released today, rising 0.6% for the month of January and pushing annual inflation to 7.5%, the highest gain in 40 years. Despite records, Nancy Davis, founder of Quadratic Capital Management, warned in a communication to ETF Trends that the current inflation environment has been achieved by unconventional means in a way that monetary tightening by the Federal Reserve will not. can’t change.

Consumer prices have risen dramatically over the past year, while workers’ real incomes rose just 0.1% in January when calculating inflation. Core inflation rose 6%, according to CNBC, with every CPI reading defying analysts’ expectations.

Image source: CNBC

“With another surprise jump in inflation in January, markets continue to worry about an aggressive Fed,” said Barry Gilbert, asset allocation strategist at LPL Financial. “While things may start to look up from here, market concern over potential over-tightening by the Fed will not go away until there are clear signs that inflation is on the mend. under control.”

Markets are now calculating and bracing for aggressive interest rate hikes, but Davis points out that this is not just a matter of inflation driven by typical inflationary pressures alone. Today’s inflation started primarily as part of supply chain constraints, a problem that no amount of Federal Reserve policy can solve.

“Many of the factors pushing inflation higher appear to be caused by supply chain constraints and fiscal stimulus and could naturally go away on their own. However, these factors take much longer than expected to slow. At the same time, commodity prices are rising and further fueling inflation,” Davis said.

Davis warns that advisers and investors need to watch the rate markets and not just the CPI to guide themselves when judging inflation. The consumer price index does not provide a complete picture and, given the Fed’s forecast, Davis believes that the rates market is actually priced on disinflation.

“Investors should not take the Fed’s ability to control inflation for granted. Inflation-linked assets can provide diversification and could be useful in a portfolio if inflation is not as transitory as most people expect and if the reduction in monetary support from the Fed is not not enough to bring inflation down,” Davis said.

Inflation hedge with IVOL

Davis is the portfolio manager of the Quadratic Interest Rate and Inflation Volatility Hedging ETF (IVOL) of KFAFunds, a KraneShares company. IVOL is designed to double hedge against an increase in fixed income volatility and/or an increase in inflation. The fund also seeks to maximize increases in the yield curve, caused either by rising long-term interest rates or falling short-term interest rates; both are tied to large stock market declines.

IVOL is the first of its kind in active and passive options and provides access to the OTC bond options market, the mechanism it uses for long-term interest rate volatility. The fund invests in a combination of US Treasury Inflation-Protected Securities (TIPS) of any maturity, which are US government bonds whose principal increases with inflation.

It also invests in long options directly linked to the shape of the interest rate swap curve in the United States, which steepens when the difference between the exchange rates of long-term debt instruments and the Short-term debt instruments rise, flatten as the spread narrows, and reverse. when the spread is negative.

IVOL is actively managed by Quadratic Capital Management, an alternative asset management firm experienced in the options and volatility markets. He plans to invest less than 20% of the fund in option premiums and seeks to buy options with an expiry date of between six months and two years.

IVOL has an expense ratio of 1.05% and manages approximately $2.1 billion in assets.

For more news, insights and strategy, visit the China News Channel.

Learn more at ETFtrends.com.

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

Given the apparent end of the multi-trillion dollar government stimulus known as Quantitative Tapering (QT), interest rates have started to rise.

In fact, the yield on the 10-year US Treasury rose from 1.52% at the end of last year to 1.92%, an increase of 26.32%. With this in mind, we thought it appropriate to illustrate the impact this will most likely have on your bond portfolio.

Generally speaking, bonds are negotiable securities that can be bought and sold after their date of issue and before their date of maturity. With this in mind, the first fact that any investor in these fixed income securities should realize is that the price or value of a bond will react inversely to interest rates. As interest rates rise as they have so far this year, bond values ​​decline.

Conversely, if the recent rise reverses and rates fall, bond values ​​will rise.

As an example, suppose that on December 31, 2021, you invested $100,000 in a ten-year U.S. Treasury bond (both principal and interest payment guaranteed by the full faith and credit of the U.S. government widely accepted as the safest fixed income investments in the world). As detailed above, the going rate that day was around 1.52%, which meant that that $100,000 would earn $1,520 in interest, or $760 paid semi-annually, every year for ten years. . However, since then the yield has climbed to 1.92%.

Therefore, if you buy a bond now, you will receive annual interest payments of $1,920, paid semi-annually. Following the rise in interest rates, what happened to the interest payments and the value of the 1.52% note you purchased on December 31? Very briefly, the interest payments of $760 semi-annually will remain the same for the remainder of the life of the note or until it matures. However, the principal value of the bond, if you want to sell it before its maturity, has gone down. After all, who would give you $100,000 for a bond yielding 1.52% when they could now buy their own bond yielding 1.92%?

The answer, sensible person. You’re stuck receiving $1,520 per year for the rest of the life of the note rather than the $1,920 you would receive if you had waited for interest rates to rise a bit. The loss to you is $400 per year for the remainder of the term or nearly $4,000 in total income.

You can therefore conclude that your bond or your bond fund may fall in price or in net asset value. As there has been a mostly unbroken bull market in bonds for nearly forty years, it is important to reaffirm that bond prices react inversely to interest rates. When interest rates rise, bond values ​​fall and when interest rates fall, bond values ​​rise. With interest rates still near 50-year lows, the most likely direction for interest rates is up.

What should an investor do now? Be patient. Let’s see how the economy reacts to all this quantitative tightening. Let’s see how President Biden and his administration handle Congress, the economy, tax reform, the burgeoning deficit, trade, foreign policy, and geopolitical events.

Keep in mind that two of our main principles of investing are 1) asset allocation works best over the long term and 2) investing in bonds for income and stocks for growth. Try to stick to the middle part of the yield curve or bonds that mature between four and eight years. By doing so, you will receive more than half the interest of a thirty-year bond with much less principal risk if you wish to sell your bonds before maturity.

Please note that all data is for general information purposes only and does not constitute specific recommendations. The opinions of the authors do not constitute a recommendation to buy or sell the stocks, the bond market or any security contained therein. Securities involve risk and fluctuations in principal will occur. Please research any investment thoroughly before committing any money or consult your financial advisor. Please note that Fagan Associates, Inc. or related persons buy or sell securities for themselves which they also recommend to their clients. Consult your financial advisor before making any changes to your portfolio. To contact Fagan Associates, please call (518) 279-1044.

Chris Matta is the President of 3iQ Digital Assets (USA). Chris is also President and Founder of the Blockchain Association of New Jersey, which advocates for innovative regulatory leadership and corporate collaboration for the cryptocurrency space.

Prince: Can you describe 3iQ Digital Assets US?

Matta: 3iQ Digital Asset Management, our parent company, was founded in Toronto in 2012 and is one of the largest digital asset investment fund managers in the industry with over $2.5 billion in assets under management as of 12/31/2021. Our company has historically been at the forefront of digital asset management innovation, including when we launched the first publicly traded bitcoin and ether funds in North America in 2020.

Entering the US market was a natural evolution as a global digital asset manager, but we believe our track record sets us apart. The team has decades of experience managing client relationships and investments in some of the largest financial services organizations. My career, for example, started at Goldman Sachs. I then started my own digital asset management company in 2017 before joining 3iQ at the end of 2020. Our team includes end users and gatekeepers – pain points and where the industry needs to go to increase adoption – and we have designed our investment platform in the United States with this in mind.

Prince: What kind of bitcoin and digital asset investment solutions can our reading audience consider given the regulatory environment and different restrictions?

Matta: A recurring question that we hear is “how to invest in space?” Currently, options for US investors seeking professionally managed investment solutions are limited. Most crypto solutions in the United States offer exposure to single assets like bitcoin. The investment structures and strategic options available are not robust. In the meantime, the crypto ecosystem continues to evolve rapidly and investor curiosity continues to increase.

We bridge the gap between traditional finance and digital asset management and strive to enable private banking advisors to confidently recommend digital assets in a familiar investment structure. That solution is 3iQ Q-MAP, a digital asset separately managed account (SMA) platform that launched in December 2021 in partnership with Gemini.

Our platform offers a wide range of model portfolios in the digital asset space. There is an option to invest in single assets like bitcoin and ether, an option to own a diversified basket of multiple crypto assets, and an option for a custom strategy. We also offer portfolio enhancements such as tax loss recapture, a benefit not available in mixed fund structures like ETFs or private funds.

A typical starting point for investors is our flagship SMA, the Market Index. The index is market capitalization weighted on the largest and most liquid assets available on the Gemini platform and provides exposure to bitcoin, ether and other emerging crypto sectors like the web. 3.0, DeFi and the metaverse.

Most importantly, Q-MAP investors own crypto assets directly in an SMA which is managed on a discretionary basis by 3iQ and held at Gemini, one of the largest qualified custodians in the industry. It is an institutional-grade account structure that eliminates much of the friction associated with self-managing a crypto portfolio.

Prince: What do you think are the main challenges of investing in digital assets and should management experience play a key role in finding exposure to crypto?

Matta: The main challenge facing the private management industry is the lack of education. This is a new asset class, and it is changing rapidly. Asset managers and custodians are catching up as investors signal they want to own digital assets beyond bitcoin. In the meantime, options remain limited as the asset management industry grapples with mounting challenges with crypto regulation. This has pushed clients to manage their own crypto portfolios, and with it, advisors have even more questions to answer beyond “what is bitcoin?” Where should I buy? What is a Wallet? What is a private key? What should I own and how much? The list goes well beyond these few questions.

There are also operational nuances unique to the crypto market. Managing all the moving parts is difficult with significant potential operational risks. Custody, for example, determines how secure and accessible your crypto assets are. Managing private keys, seed phrases, and account passwords is common in managing your crypto wallet, but doesn’t apply to traditional finance. If you lose your private key and cannot recover it, your crypto assets are gone.

For many of these reasons, professional third-party investment management is the most convenient route for wealthy investors. The size, scale and stamina of the manager are important, as this often determines relationships with operational partners. Major investment managers are institutional investors, and this usually comes with an institutional-grade infrastructure passed down to the end client. Track record is also important – managers with investment experience across multiple cycles are well positioned to adapt to ongoing developments in the space.

Prince: From an allocation perspective, what advice can you offer the Private Wealth audience for considering exposure to bitcoin and digital assets as part of an overall investment portfolio?

Matta: The rules of traditional finance still apply when advisors think about building up an allocation for clients. We view digital assets as venture capital-like investments with 24/7 liquidity. Bitcoin, Ethereum, and many crypto projects are powered by blockchain, a transformative technology that is still in the adoption stage. Like other venture capital investments, we would pool digital assets as alternative investments. Historically, we have seen a number of university endowments embrace venture capital in their allocation of alternatives with a typical range between 5% and 15%. We believe that digital assets should be part of this venture capital basket.

Digital assets also offer the opportunity to generate alpha for clients in an environment where it is difficult to maintain the historical risk/return assumptions of diversified stock and bond portfolios. Even though it is a volatile asset, if sized correctly, we believe Bitcoin can add value to a diversified portfolio. It has been the best performing asset class for eight of the past 10 years, and returns tend to move independently of other risky assets. Historically, it has had a low correlation with equities and a negative correlation with fixed income securities. Conceptually, we think of it as a form of insurance or portfolio protection within an asset allocation. It can act as a hedge against the broader risks we see in the financial system today, such as rising inflation or anemic returns.

If we had a message for the community of private wealth advisors, it’s not to stay put. HNW investors ask questions about bitcoin and digital assets every day, and if you’re not having the conversation with your customers, then someone else is. If you don’t educate yourself on this asset class, you risk being the owner of the taxi medallion in a rideshare world.

Request a free PDF copy of Elite Wealth Planning: Lessons from the Super Rich at [email protected]

If the outlook for the 60/40 allocation is so bleak, why are so many advisors and investors still clinging to this safety blanket of portfolios?

In my opinion, it’s because he hasn’t let them down yet.

The appeal of a 60/40 portfolio is obvious. It has provided diversification and strong risk-adjusted returns for decades. Its underlying components – stocks and bonds – are quite intuitive and easy to understand for most investors. Most importantly, it’s incredibly easy and inexpensive to build. You can own a globally diversified 60/40 portfolio with just a few clicks through an ETF like the iShares Core Growth Allocation AOR ETF,
+1.09%.

But as user-friendly and rewarding as this wallet is, investors looking to rebalance their portfolios or grow new cash are being offered unattractive trade-offs.

The start of 2022 has been somewhat difficult for both components of the 60/40 – US stocks and bonds. The US stock market, as measured by the SPDR S&P 500 ETF Trust SPY,
+2.48%,
is down 7% year-to-date through Friday. The more growth, the more the Nasdaq-100 index tilts towards NDX tech stocks,
+3.22%,
measured by the Invesco QQQ QQQ ETF,
+3.14%,
is down nearly 12% through Friday.

While these corrections are somewhat modest, what worries diversified investors is that bonds are falling at the same time. The iShares Core US Aggregate Bond ETF AGG,
+0.07%
is down 2% through Friday amid rising interest rates. This reminds us that bonds are not always decorrelated from equities.

Fortunately, there is a growing opportunity for the average investor to tap into a wider range of yield streams. Adding alternative investments to the investment mix can allow investors to maintain their preferred position on the risk curve, but with less uncertainty around the tails and with a higher degree of confidence in long-term outcomes. term.

It may sound like an oxymoron, but alternative investments are becoming more mainstream. Vanguard is now in the private equity business. Cryptocurrencies BTCUSD,
+0.81%,
barely a teenager, are beginning to gain traction in institutional and advisor-led portfolios.

If history is any guide, we should expect many of today’s alternatives to become tomorrow’s diversifiers.

So if 60/40 isn’t the default answer anymore, what is it?

Investors looking for balance and using 60/40 as a baseline should generally own less than 40, maybe a little less than 60, and a decent amount more of ‘other’. But that’s where the generalizations stop.

There is no single allocation to alternatives that makes sense for all investors. The middle ground is somewhere between “enough to make a difference” and “too much for investors to stick to”. What has become increasingly clear is that the only wrong answer is zero.

I constructed three hypothetical index-based portfolios with varying degrees of alternatives and different investor goals in mind. The risk and reward statistics for these portfolios go back to October 2004, the earliest date that the index data allow. They are updated to the end of September 2021, as several of the underlying indices use illiquid asset classes which have delayed publication. The returns shown below do not represent actual accounts and are designed only to provide a reasonable estimate of portfolio risk. Indices are unmanaged, do not reflect fees and expenses, and are not available as direct investments.

This period covers both the good times and the good times, including the decade-plus bull market in equities we just experienced as well as the carnage of the 2008-09 financial crisis that saw the S&P 500 SPX,
+2.43%
experience a 55% decline from peak to trough.

Stocks are represented by the MSCI All Country World Index. Bond market performance is measured by the Bloomberg US Aggregate Bond Index.

The alternative allocation is also split between four broad categories: alternative risk premia, catastrophe reinsurance, real assets and private debt, some of which are tracked by private market indices. However, all strategies can be implemented through SEC-registered “wrappers” like mutual funds, ETFs, and interval funds that do not require an investor to be accredited to own them.

• 50% equities/25% alternatives/25% bonds: This portfolio is intended to have a risk profile similar to that of a 60/40 portfolio, but with an objective of higher returns due to the low expected returns offered by traditional fixed income securities.

• 60% equities/20% alternatives/20% bonds: This portfolio is for an investor willing to tolerate somewhat higher volatility in pursuit of higher expected returns.

• 40% equities/30% alternatives/30% bonds: This portfolio is for a more conservative investor who is looking to significantly reduce risk from 60/40 but who is reluctant to move too much capital into fixed income securities.

Each index portfolio achieved the desired objectives, as shown in the table below.

Source: The Allocator Edge

The 50/25/25 portfolio outperformed the 60/40 portfolio with less volatility and a lower maximum drawdown. The 60/20/20 allocation achieved the highest returns compared to the 60/40 combination, commensurate with its slightly higher risk profile. Finally, the 40/30/30 portfolio achieved returns in line with the 60/40 portfolio but with much less volatility and maximum drawdown.

It is important to remember that this is what would have happened over the past 17 years. As we look ahead, which we always should, the bond coin will not have the big tailwind of falling rates to support it and the calculation of low starting yields is inevitable. History has shown that your starting yield in bonds will explain more than 90% of returns over the next decade.

Conventional portfolio building blocks of stocks and bonds are still necessary, but no longer sufficient. A future where investors can simultaneously grow and protect their wealth through meaningful diversification and return potential is still possible, but it requires substantial change. Small tweaks and incremental changes won’t be enough.

The time has come for dispatchers to be bold, embrace alternatives, and sharpen the dispatcher’s advantage.

Phil Huber, chief investment officer of Chicago-based Savant Wealth Management, is the author of “The Allocator’s Edge: A modern guide to alternative investment and the future of diversification”. Follow him on Twitter @bpsandpieces.