After a challenging 2022 and a strong 2023 bounce back, 2024 has been a solid year for fixed income.
The Federal Reserve implemented rate cuts throughout the year and despite rate cuts, bond yields remained relatively elevated, offering attractive income opportunities.
ETFsector.com looked back on a set of indices (above) and picked out the top three and single bottom one performing benchmarks and reviewed below what exposures they each represent.
Investors seeking yield in their portfolios can access these exposures in ETF and Mutual Fund vehicles.
- The main draw for BDCs is their high dividend yields. BDCs invest in small and midsize businesses. Some cases involve BDCs gaining equity positions in companies, but BDCs also invest in companies by lending money. These entities are similar to venture capital funds. The index consists of 41 constituents in the Financial Services Sector, with a mean market cap of $1.7 Billion.
- The ICE U.S. Variable Rate Preferred Securities Index tracks the performance of floating rate and fixed-to-floating rate exchange-listed U.S. dollar denominated preferred and convertible preferred securities publicly issued in the U.S. domestic market. The index holds about 50 US-listed preferred stocks with variable rates and has a 7.23% SEC yield.
- The Bloomberg US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below1. The index includes all domestic and Yankee high-yield bonds, including deferred interest bonds.
- The underlying index measures the performance of U.S. dollar-denominated taxable bonds that are rated either investment-grade or high yield with remaining maturities greater than ten years. The benchmark holds approximately 3,700 issues and carries a 30-day yield of 4.9%. 72% of the constituents are A rated or better and have an effective duration of 13.5.
Investors are anticipating further interest rates cuts in 2025, however how much and when is still debatable, as the new administration takes over and details if their fiscal policy become clearer. So far, the market seems to have priced in 2-3 Fed rate cuts for 2025, which some experts considered too dovish.
Overall, bond investors in 2025 are anticipating a complex landscape with opportunities for attractive yields and returns, but also facing potential challenges from policy uncertainty and market volatility.
