ETF Edge on investing around the Fed chair nominee, high yields and inflation fears
Speakers
JoAnne Bianco
— Senior Investment Strategist, BondBloxx
John Davies
— CIO, Astoria Portfolio Advisors
Summary
The video discusses the impact of rising Treasury yields, persistent inflation, and a new Fed chair nominee (Kevin Warsh) on ETF strategies. Strategists JoAnne Bianco and John Davi share their top picks: Bianco favors short-duration emerging market debt, high yield credit, and private credit CLOs, while Davi advocates for real assets, broad commodities, and emerging markets. Both emphasize higher-for-longer inflation and a resilient US economy as key investment drivers.
- Treasury yields hit new highs with the 10-year above 4.5%, causing equity wobbles.
- Inflation remains elevated due to energy disruptions from the Iran conflict.
- JoAnne Bianco recommends XEMD (short-duration EM debt), high yield funds (HYSA, XBB, XB), and PCMM (private credit CLO).
- John Davi favors PPI (real assets), CER (broad commodities), and EMG (emerging markets).
- Both guests see the US economy as resilient, supporting risk assets.
- A barbell approach with hyperscalers and real assets is suggested for portfolio construction.
- Commodities are trending and could continue to lead for years.
- The new Fed chair Kevin Warsh and balance sheet policy are key watchpoints.
Trade Ideas
Real assets fund PPI outperforms in inflation cycle
Real assets (via the PPI fund) provide inflation protection and have outperformed the S&P 500 by 25% since 2021. Real assets have been the leading asset class in six of the last seven years. Inflation is structurally higher and unlikely to return to 2% soon, supporting a long-term allocation to real assets.
EM short duration debt fund is top performer
Short duration emerging markets debt offers better carry, yield, and total return potential. The fund XEMD has been the best performer last year and year to date, benefiting from a resilient US economy that supports EM fixed income.
High yield credit benefits from strong fundamentals
The high yield market is attractive due to strong fundamentals, a resilient economy, impressive earnings, and stable guidance. The market has the highest credit quality in its history with over 56% rated doubleB, and management teams have focused on refinancing rather than leveraging. Funds like HYSA, XBB, and XB provide targeted exposure.
Private credit CLO fund yields 7% with low volatility
The private credit CLO fund PCMM provides attractive income in the 7% range with low volatility. Its floating rate nature and single A average quality make it a top pick for income in a higher-rate environment.
Commodities likely to trend higher for years
Broad-based commodities (via CER) are trending due to higher inflation and the Middle East conflict. Commodities can lead for multi-year periods, and we are roughly five years into an inflation cycle that could continue for another 2-3 years, making commodities an attractive diversifier.
Emerging markets ETF adds global diversification
Emerging markets (EMG) are favored as a global diversification tool. The strong US economy provides a tailwind, and owning EM helps build a more balanced portfolio. The firm is big fans of EMG.
