Chart of the Week: Advisors Willing to Take on Rate Risk

Many advisors and investors in 2023 have turned to fixed income ETFs with an average duration of less than one year. Taking on very little interest rate risk through duration has been rewarding as well. However, as the Fed appears to many to have ended its rate hiking program, and may be cutting rates in 2024, sentiment is shifting.

This week, VettaFi hosted an Alternatives Symposium. More than 700 attendees heard from industry experts about commodities, cryptocurrency, managed futures, private equity, and more. While much of the discussion steered away from the bond market, we were able to gauge risk tolerance. We asked: “In the next 12 months, what best describes your plan to adjust your bond exposure?”

Most of the respondents (53%) selected “take on more duration and less credit risk,” while another 16% chose “take on more duration and more credit risk.” Among the other respondents preferring to take on less duration risk, taking on less credit risk (21%) was more popular than more credit risk (10%).

Take on More Duration With Little Credit Risk

The SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) pulled in $10 billion of new money thus far in 2023. BIL has a 30-day SEC yield of 5.3% and a year-to-date total return of 4.4%. However, the SPDR Portfolio Intermediate Treasury ETF (SPTI) might be a good alternative for those looking to take on more duration but not take on more credit risk. SPTI’s average duration is 5 years, and the fund has a 4.6% yield. SPTI has a minuscule 0.03% expense ratio adding to its appeal.

Meanwhile, the US Treasury 3-Month Bill ETF (TBIL) gathered $2.5 billion so far this year. Its peer, the BondBloxx Bloomberg Six Month Target Duration US Treasury ETF (XHLF), added $1 billion. Both ETFs launched in 2022 and those willing to try out relatively new funds were rewarded. TBIL and XHLF gained 4.6% and 4.3%.