Time to switch into $VCIT from $BIMSX?
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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 issuersSecondary 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 firstname.lastname@example.org 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
|Ticker||Name||Discount to NAV*|
|$VCIT||Vanguard Intermediate-Term Corp Bond Idx Fund ETF||4.34%|
|$LQD||iShares iBoxx $ Inv Grade Corporate Bond ETF||2.78%|
|$VCLT||Vanguard Long-Term Corporate Bond Idx Fund ETF||7.29%|
|$IGLB||iShares Long-Term Corporate Bond ETF||4.64%|
Recently Outperforming Corporate Bond ETFs
|Ticker||Name||Discount to NAV*|
|$CORP||PIMCO Investment Grade Corporate Bond Index ETF||4.14%|
|$SPLB||SPDR Portfolio Long Term Corporate Bond ETF||3.89%|
|$QLTA||iShares Aaa – A Rated Corporate Bond ETF||2.15%|
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
|Ticker||Compare in Portformer vs IGLB|
|BIAKX||BlackRock Impact Bond Fund;K|
|HABDX||Harbor Bond Fund;Institutional|
|SCSBX||DWS Total Return Bond Fund;S|
|NCRLX||Neuberger Berman Core Bond Fund;Institutional|
|JMTAX||JPMorgan Total Return Fund;A|
|MXFDX||Great-West Core Bond Fund;Investor|
|PBNAX||PACE Strategic Fixed Income Investments;A|
|ACCUX||American Century Core Plus Fund;R5|
|CFBFX||American Funds Corporate Bond Fund;F3|
|PMFIX||PMC Core Fixed Income Fund|