Tactical Alert: FED will buy Bond ETFs

Time to switch into $VCIT from $BIMSX?

See 40 other examples below

We look at which Corporate Bond ETFs are not only trading at a discount to NAV but also have underperformed their Mutual Fund alternatives. We highlight this as a tactical opportunity for Portformer Users.

Look below for details on the ETFs: $VCIT, $LQD, $VCLT, $IGLB and others

The initial announcement is here: Federal Reserve announces extensive new measures to support the economy and details of the Secondary Market Corporate Credit Facility (SMCCF) Term Sheet. You can read more coverage here: ETF.com, Yahoo Finance, Bloomberg

Some Quick Background

Today the Federal Reserve announced that:

Under the Secondary Market Corporate Credit Facility (“Facility”), the Federal Reserve Bank of New York (“Reserve Bank”) will lend, on a recourse basis, to a special purpose vehicle (“SPV”) that will purchase in the secondary market corporate debt issued by eligible issuers

Secondary Market Corporate Credit Facility

What that means in english is that, just like in the Financial Crisis, they will purchase securities that they deem to be mispriced in order to restore liquidity and the functioning of the fixed income markets, and, therefore, help banks and companies pass the monetary stimulus more effectively into the real economy. The key thing here that relates to Portformer and the work we are doing here is that:

Eligible ETFs: The Facility also may purchase U.S.-listed ETFs whose investment objective is to provide broad exposure to the market for U.S. investment grade corporate bonds.

Secondary Market Corporate Credit Facility

What does this mean for Portformer clients?

If you believe the Federal Reserve will be effective in restoring bond market liquidity AND if you believe that our Portformer ETF alternatives are suitable and appropriate instruments for you and your clients, then I would encourage you to proactively analyze your existing ETFs and Mutual Funds to see if there is an opportunity to tactically take advantage of this.*

* This is not a trading recommendation, this is an exercise in fund screening.  Fund deviations from NAV and prices are subject to change.
Contact sales@portformer.com if you have questions

Here are the top Mutual Funds who’s ETF alternatives are potentially mispriced and could be bought by the Federal Reserve. We are assuming that the FED will look at all ETFs that are US Corporate Bond ETFs and have been trading at a discount to NAV.

We can look at which firms are trading at a discount to NAV from our trading systems or we can also look at the relative performance of Mutual Funds and their ETFs counterparts to determine if the ETFs have underperformed recently. A quick call to our database highlight these are the top Corporate Bonds to consider.

List of Corporate Bonds that have underperformed their Mutual Fund Alternative the most in March (In decreasing order of average dislocation)

Recently Underperforming Corporate Bond ETFs

TickerNameDiscount to NAV*
$VCITVanguard Intermediate-Term Corp Bond Idx Fund ETF4.34%
$LQDiShares iBoxx $ Inv Grade Corporate Bond ETF2.78%
$VCLTVanguard Long-Term Corporate Bond Idx Fund ETF7.29%
$IGLBiShares Long-Term Corporate Bond ETF4.64%

Recently Outperforming Corporate Bond ETFs

TickerNameDiscount to NAV*
$CORPPIMCO Investment Grade Corporate Bond Index ETF4.14%
$SPLBSPDR Portfolio Long Term Corporate Bond ETF3.89%
$QLTAiShares Aaa – A Rated Corporate Bond ETF2.15%

A Quick Look Corporate Bond Mutual funds

We’ve done an extensive write-up of the Performance of Portformer Mutual Fund vs ETF Alternatives during the Coronavirus Correction.

Click on each name below to explore in Portformer

TickerCompare in Portformer vs VCIT
CCBPXCapital Group Core Bond Fund
CBOCXAmerican Funds Intmdt Bond Fund of America;529-C
BIMSXBaird Intermediate Bond Fund;Investor
ACTVXAmerican Century Zero Coupon 2025 Fund;Advisor
BIMIXBaird Intermediate Bond Fund;Institutional
BCPAXBrandes Core Plus Fixed Income Fund;A
BCPIXBrandes Core Plus Fixed Income Fund;I
CMFCXAmerican Funds Mortgage Fund;529-C
MFAAXAmerican Funds Mortgage Fund;A
CMFAXAmerican Funds Mortgage Fund;529-A
TickerCompare in Portformer vs LQD
PIFAXPACE Intermediate Fixed Income Investments;A
DXKLXDirexion Monthly 7-10 Year Treasury Bull 2x Fd;Inv
CTRIXCalamos Total Return Bond Fund;I
GMDYXGuideStone Medium-Duration Bond Fund;Inst
ACCPXAmerican Century Core Plus Fund;R
PRAIXPIMCO Lg-Tr Real Return Fund;Institutional
UTBAXUBS Total Return Bond Fund;A
USIBXUSAA Intermediate-Term Bond Fund;Fund
RCBBXAmerican Funds Corporate Bond Fund;R2
MPFIXMorgan Stanley Inst Core Plus Fixed Inc Port;I
TickerCompare in Portformer vs VCLT
VBTLXVanguard Total Bond Market Index Fund;Admiral
VGLTVanguard Long-Term Treasury Index Fund;ETF
BIAAXBlackRock Impact Bond Fund;Investor A
BIACXBlackRock Impact Bond Fund;Investor C
MUCAXVictory INCORE Total Return Bond Fund;A
BJBGXAberdeen Total Return Bond Fund;A
RYABXRydex Government Long Bond 1.2x Strategy Fund;A
GESLXGE RSP Income Fund
PEDIXPIMCO Extended Duration Fund;Inst
NOCBXNorthern Core Bond Fund
TickerCompare in Portformer vs IGLB
BIAKXBlackRock Impact Bond Fund;K
HABDXHarbor Bond Fund;Institutional
SCSBXDWS Total Return Bond Fund;S
NCRLXNeuberger Berman Core Bond Fund;Institutional
JMTAXJPMorgan Total Return Fund;A
MXFDXGreat-West Core Bond Fund;Investor
PBNAXPACE Strategic Fixed Income Investments;A
ACCUXAmerican Century Core Plus Fund;R5
CFBFXAmerican Funds Corporate Bond Fund;F3
PMFIXPMC Core Fixed Income Fund

Sean Kruzel

Based in Boston, Sean is a portfolio manager, MIT grad, and founder of Portformer. When he’s not investing or programming, he’s probably sharpening his skis for the next icy, New England snowstorm. Check out his full bio here: https://www.portformer.com/our-team

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