As financial markets continue to evolve, innovative solutions are essential for investors to navigate the complexities of today’s economic environment. In the world of fixed income investing, BondBloxx is emerging as a trailblazer, offering targeted strategies and products to meet the needs of both institutional and individual investors.
In a conversation with The Wealth Advisor’s Scott Martin, Joanna Gallegos discusses the innovative approach of the BondBloxx CCC Rated USD High Yield Corporate Bond ETF (ticker: XCCC) and its significance in a resilient market for corporate bonds, both investment grade and high yield. Gallegos shares her insights into how BondBloxx ETFs, such as XCCC, are designed to meet the current needs of investors.
A High Yield Opportunity Amid Resilient Markets
Amid ongoing strong macroeconomic conditions, the high yield bond market presents a compelling opportunity. “Since the economy continues to stay resilient and interest rates are coming down, that actually improves the fundamentals for an area in credit which has been very resilient through these markets, which is high yield and specifically CCC high yield,” says Gallegos.
For advisors seeking high income opportunities, the CCC segment of the bond market stands out for its attractive yields. Gallegos highlights the advantages: “It has historically provided the highest yields available in U.S. fixed income markets, and has been one of the highest returning fixed income asset classes over the last two years (ICE Data Services, as of 12/10/2024). And since it’s broadly diversified across industries and sectors, it can help diversify portfolios.” The XCCC ETF is an example of BondBloxx’s mission to bring innovative and targeted fixed income solutions to the market.
Addressing Gaps in Fixed Income ETFs
One of the most significant challenges in fixed income investing is the lack of granularity available to financial advisors. Gallegos points out that despite the growth in ETFs, only a small fraction tend to be dedicated to high yield bonds, underlining the need for more targeted products. BondBloxx has responded by creating ETFs such as XCCC that allow advisors to take a more nuanced approach to portfolio construction.
“We launched high yield funds across rating categories and in sector categories,” says Gallegos, underscoring the versatility of BondBloxx’s products in helping advisors manage specific risks.
This strategy enables advisors to be precise in their risk management, whether focusing on credit ratings or sector specific exposure within the high yield market.
Yield and Diversification Advantages
BondBloxx’s XCCC ETF invests in CCC-rated corporate bonds, offering some of the highest yields in fixed income. By holding a portfolio of these bonds, investors can reduce the risks associated with individual CCC bonds while benefiting from diversification across industries and issuers.
This diversification provides an extra layer of risk management, making the XCCC ETF an appealing option for advisors seeking to enhance their fixed income strategies. By accessing this high yield segment, advisors can better align their portfolios with the evolving market environment.
Rethinking Fixed Income Strategies
Gallegos encourages advisors to move beyond broad exposures like the US aggregate bond index and instead focus on more precise allocations:
“You really need to refresh that 40%. Look at it, update your Agg, enhance your Agg position. It is such an important core position for most portfolios.”
BondBloxx’s range of targeted products, including the XCCC ETF, enables a more dynamic approach to fixed income investing, allowing advisors to align their strategies with the current market conditions and economic outlook.
Closing Thoughts
BondBloxx’s innovative approach to fixed income investing has the potential to reshape how advisors think about portfolio construction. Gallegos highlights the company’s commitment to helping advisors discover new opportunities and make informed decisions that can enhance client outcomes:
“We do our best to talk about these opportunities, make people aware of them, ask clients to take a look, refresh what they’re doing, and make some meaningful impact for their clients.”
For advisors looking to leverage fixed income more strategically and effectively, BondBloxx’s XCCC and other solutions offer a pathway to not only meet clients’ income needs but also to position their portfolios for growth in a changing interest rate environment.
Fixed income has often been seen as static, and BondBloxx is challenging that perception by offering innovative tools that make active risk and return management accessible through ETFs. For financial advisors, this opportunity represents a significant evolution in how they can approach fixed income investing and better serve their clients’ needs.
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Disclosures
Carefully consider the Funds’ investment objectives, risks, charges, and expenses before investing. This and other information can be found in the Funds’ prospectus or, if available, the summary prospectus, which may be obtained by visiting bondbloxx.com. Read the prospectus carefully before investing.
There are risks associated with investing, including possible loss of principal. Fixed income investments are subject to interest rate risk; their value will normally decline as interest rates rise. Fixed income investments are also subject to credit risk, the risk that the issuer of a bond will fail to pay interest and principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of that bond to decline. Securities that are rated below investment-grade (sometimes referred to as “junk bonds”) be deemed speculative, may involve greater levels of risk than higher-rated securities of similar maturity and may be more likely to default. Investing in mortgage- and asset-backed securities involves interest rate, credit, valuation, extension and liquidity risks and the risk that payments on the underlying assets are delayed, prepaid, subordinated or defaulted on.
Nothing contained in this presentation constitutes investment, legal, tax, accounting, regulatory, or other advice. Information contained in this presentation does not constitute an offer to sell or a solicitation of an offer to buy any shares of any BondBloxx ETFs. The investments and strategies discussed may not be suitable for all investors and are not obligations of BondBloxx.
Bond ratings are grades given to bonds that indicate their credit quality as determined by private independent ratings services, such as Standard & Poor’s, Moody’s and Fitch. These firms evaluate a bond issuer’s financial strength or its ability to pay a bond’s principal and interest in a timely fashion. Ratings are expressed as letters ranging from ‘AAA’, which are the highest grade, to ‘D’, which is the lowest grade.
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