Following the flows: Investors rush into corporate bonds, 'fallen angel' funds amid Fed backstop – YouTube

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“Had a great report on friday night. The etf share of total trading volume in in the month from february 24th to march 23rd. It was 27 at the end february. It went to 37 last week.

So think about this neg nearly 40 of every 100 traded in the us stock market is now done through an etf or has been in the last couple of weeks. This is unusually high does that have any implications for trading overall given that most etfs don t actually trade the underlying stocks most is trade between themselves did there s not a lot of creation and redemption much of the time when these these ets trade. Yeah. That s right i mean i think of it in sort of two frameworks.

The first is short term where the etfs basically took a lot of a load of repricing assets and repricing risk without having to go to the underlying asset as you very rightly point out and that s a net positive. I think an unalloyed positive it allowed price discovery of asset classes much faster and more efficiently than going through and figuring out the underlying asset prices and then bubbling up to a top line so that s good the longer term issue which i think is important for the industry and look thinking out two three four or five years is these kinds of dislocations these kinds of crises tend to only accelerate. The move into etfs further because whenever you see market volatility you tend to see declines in asset prices. And it reminds investors that long term returns have been lower than historical averages and in that context.

You want to have a transparent low fee option for your capital and that is the tf solution in a nutshell. So i think. There s a short term issue. Where they worked well and helped price discovery and along with permission that says.

The etf industry should look at this event and understand that the aum is only that arise further in the next 2 3. 4. Or 5 years. Yeah.

Reggie do you buy into that that this will what we ve been seeing will accelerate the move into etfs number one and number two they ve brought up a very interesting point..

Which is what a lot of the eetzi have haters bring up. Which is the etfs are leading the stock market. It s not the stock market that s leading. The etfs is there something wrong with that idea at all or is there any reason for us be concerned with that well.

I think investors who are not investing in corporate bonds for caps. Trucker cap structure. Only for exposure. I think the the passive vehicle or ets is probably without the first rather choice because going back to lqd you can pick up an etf that represents 1900.

Different corporate bonds and and have a exposure across the spectrum. And so for that perspective just like you saw in spyder. When it s first launched in the us 1993 you see folks navigating towards the badger mix. Bart benchmarks in order to edge their exposure.

So yes i do believe over the course of time that the ets will be the vehicle choice will exposure. And the hedging vehicle as far as the naysayers. I think anytime you have a share market. Where you have arbitrage and market makers like gts is buying and selling an asset and enticing real time a marketplace.

The markets are fair and transparent and liquid. And so i don t understand the argument against having more transparency and yet more pricing and more capital because it brings nothing more than efficient in the marketplace. So efficiency is where i think investors will wind at the long term. Yeah.

I want to bring up one..

Other etf tied to the bond market that i got a lot of questions on and that s a van x. Fallen angel high yield. Etf. The symbol here is a and gl if they track a market of cap weighted index of bonds that were rated investment grade but are now rated junk and now this is course the highest quality junk.

But it s was investment grade. That s why it s called a fallen angel and essentially what you were betting here gentlemen. It seems to me that they re buying bonds that have downgraded to junk. So they re cheaper so you re buying them when they re lower priced theoretically and the hope seems to be here that you re going to be able to eventually built they ll either move up in price because they ll stabilize or they ll go back into investment grade.

And it s sort of a bi lows sell high ideology. This is sort of like the highest quality junk concept reggie i wonder if you could talk about these investment downgrades. There s rating downgrades that are coming and whether that s an interesting philosophy for getting into high yield in a sort of high quality way people have been asking me a lot about this fallen angels etf. So i wonder what your thoughts might be on this well.

I i think one is it s also a search for yield and just like investors choice with with all of the junk bond etfs. There s been nothing but a hunt for yield across the spectrum. So falling angel etf will event. I m sorry vanek brings it out i think.

It s more of a bet around fundamental value and also value with his etf here. And so the liquidity is here. I think from the perspective of investors looking at it absolutely why because it s a higher yielding product. And then an as you state is opportunity for them to go back.

Yeah and nick just end with you reggie s right..

The investor interest in high yield. Has been enormous cnbc viewers love a high yield funds. In general. But as we see here they can act a lot like stock funds.

They are essentially plays on credit. Not plays on interest rate. And when you ve got credit concerns like we ve seen with companies maybe not being able to make all of the debt obligations. These things can go down fairly quickly.

What is your data revealed about buying into high yield funds in the right. And wrong time right and wrong time to get involved in them yeah. Essential point is correct. They say a lot like stock funds.

So you re going to have a high correlation. And that david really between equity funds. And and high yield. Funds.

So you re getting are basically a yield pickup with a equity. You like your term risk profile. It s important to understand. Though that the fed shows the investment grade market.

The backstop and not the high yield market and so for investors looking for some yield..

But wanting that bigger backstop and the investment grade side is the way to go. And it s important to understand the fed did that for a reason. 25 of lq t is financials its banks. You know the big banks are 14 of lqd.

So. The fed had the backstop that and in the fed stress tests. The triple b. Market.

Is part of the framework. The high yield market is not so it s a riskier perspective. In terms of a final. Fed backstop as well yeah.

Yeah. That s a great point nick. It is buying lqd was partly a feds way of helping to backstop the bank s certainly. The debt of the banks.

I think that s a very good point music music you you ” ..

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GTS Principal Reginald Browne and DataTrek co-founder Nick Colas talk recent exchange-traded fund market inflows with CNBC s Bob Pisani.

Stocks rose on Monday, building on a strong rally from last week as the U.S. extends measures to contain the coronavirus outbreak.

The Dow Jones Industrial Average was up 500 points, or 2.2%. The Su0026P 500 climbed 2.4% while the Nasdaq Composite traded 2.9% higher. Tech stocks such as Microsoft, Alphabet and Amazon led the way higher for Wall Street. Microsoft jumped more than 5% while Alphabet and Amazon climbed 2.6% and 3.6%, respectively.

President Donald Trump said at a news conference Sunday the national social distancing guidelines have been extended to April 30, adding the death rate from the virus would peak in two weeks. These measures, while they may cause a sharp economic disruption in the near term, are seen by some investors as preventing long-term damage to the economy.

Sentiment was also lifted after Johnson u0026 Johnson said it identified a lead vaccine candidate for the coronavirus. The company noted that human testing on the potential vaccine will begin in September. Ju0026J shares climbed 7.6%. Italy also reported its lowest number of new cases in almost two weeks.

The Dow last week posted its biggest weekly gain since 1938, surging more than 12%. The Su0026P 500 and Nasdaq are coming off their best week since 2009, after rising 10.3% and 9.1%, respectively. To be sure, it was a volatile ride for investors. The Su0026P 500 posted daily swings of at least 2.9% in four of the five sessions. That includes a 3.4% drop on Friday for the Su0026P 500.

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