Tag Archives: Olly Ludwig

PowerShares Plans Short-Term Junk ETF

indexuniverseCourtesy of Olly Ludwig

Invesco PowerShares filed regulatory paperwork to bring to market a short-term global bond exchange-traded fund focused on high-yield credits, its second filing this month detailing a short-dated bond fund after it put one into registration two weeks ago focused on investment-grade debt.

Together the two proposed funds will serve up access to a relatively safe corner of the fixed-income world that offers protection from potentially large losses that holders of longer-dated bonds would face in the event of a downside bond-market correction.

The PowerShares Global Short Term High Yield Bond Portfolio will be based on the DB Global Short Term High Yield Bond Index, a benchmark that will select both U.S. and foreign-dollar-denominated, noninvestment-grade debt from both public and private issuers, the filing said. All holdings must also be no more than three years from maturity.

The two short-dated PowerShares bond funds come at a possibly critical juncture, as bond investors start to look for ways to protect themselves from what a rise in inflation could do to prices of existing bonds. Concentrating holdings on the short end of the yield curve looks to be one of the simplest ways of achieving this objective, even if short-term fixed-income holdings won’t entirely escape the effects of a bond market sell-off.

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James Grant: Short $LQD Before Bonds Fall

indexuniverseCourtesy of Olly Ludwig

Sooner or later the bond market is going to start falling, and a perfect exchange-traded vehicle to play the unraveling of the more than three-decade rally in fixed-income markets is “LQD,” a corporate bond fund that happens to be one of the largest fixed-income ETF in the world, James Grant told attendees at IndexUniverse’s Inside ETFs conference this week.

But Grant, the editor and publisher of Grant’s Interest Rate Observer, said that while he is short the iShares iBoxx $ Investment Grade Corporate Bond Fund (NYSEArca: LQD), it’s terribly difficult to time such trades, as markets are “unreliably efficient” and “reliably inefficient” and, moreover, the Federal Reserve’s loose-money policies since 2008 essentially mean that interest rates are not in a free market.

Grant’s comment about LQD came in response to a question from IndexUniverse Chief Executive Officer and founder Jim Wiandt, who introduced Grant and asked what investors—faced with the prospect of the end of a secular bull market in bonds since the early 1980s—should now do.

“Short,” said Grant. “I’m short something called LQD.”  The ETF, the iShares iBoxx $ Investment Grade Corporate Bond Fund (NYSEArca: LQD) is quite liquid and has $24 billion in assets under management.

Grant, a longtime critic of the Fed and a proponent of a return to the gold standard, was the grand finale at the 6th Annual Inside ETFs conference, which took place in Hollywood, Fla. from Feb. 10-12. The event, which has become the see-and-be seen event in the world of ETFs, was attended by nearly 1,300 people, most of them financial advisors and fund sponsors. Continue reading