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Multi-Sector Bond ETFs
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About Multi-Sector Bond ETFs |
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Multi Sector Bond ETFs Overview and forecast
This class of ETFs is one of the more traditional models, usually paying dividends every month, and trading across a range of bonds. Like the other financial bonds, the Multi Sector Bond ETFs started to hit the wall in 2008, or in some cases earlier, and a very steep downward move of prices was the general result of the crash. Financial funds haven't been in fashion, and the bond factor, which can be a positive or a negative, has been a mixed blessing.
Generally speaking, in any conventional view of securities trading, bonds are the safest, tamest, of things. That's no longer a positive in the more aggressive traders' market which has sprung up since the crash, and the Multi Sector Bond ETFs have been staging relatively minor upswings in a rising market climate.
To give some idea of how diverse the Multi Sector Bond ETFs are, you can look at our general chart, and then look at Morgan Stanley Income Securities (ICB), where as you can see the downside in the 12 month period was noticeably a lot lower than most of the other ETFs in its class. This ETF as a major achiever in its original model, which was conceived in the 1980s. It survived the 1990s downturns, the early 2000s, went straight down and straight back up, and has remained more or less at the top of its price band since.
The other Multi Sector Bond ETFs didn't do so well, and their performances have reflected a certain lack of enthusiasm for the brand. Despite being structured as income funds, the rationale of monthly dividends, which normally produces a range of payments from about 6- 12 cents per unit, has inverted itself. That rate of payment, relative to the unit prices, is now way out of whack with the original model. It remains to be seen if the Multi Sector Bond ETFs can remodel themselves, or be overtaken by other, more aggressive ETFs.
Short term (6 months)
ICB is one of the few Multi Sector Bond ETFs which seems to have retained its prices. This is a large, well capitalized ETF, and trading has been quite strong in dollar terms, compared to others. These are slow moving ETFs, and although money is clearly being made on margins, it's not being made in a hurry.
The Multi Sector Bond ETFs don't look like winners, because they've been treading water in a shrinking pool. Some of the lower priced ETFs are creating good trading environments, but an ETF like http://www.etftips.com/HAV Helios Advantage Income Fund Inc (HAV) shows some of the difficulties in analysis. Its inception price was $15. The price in early June 2009, was $1.20, up from below 80c at the start of March. Each of these funds is different, but as a class, they're not flying. The short term view is really Ho Hum.
Medium term (2 years)
Bonds and related securities can't ever be totally written off as potential good investments, particularly in a low interest rate regime. It is possible that these ETFs, many of which are designed as income funds, do have a meaningful upside, under variable rates of interest. If so, their holdings would have to be up- valued.
Some bond holdings are also strategic, and major bondholders, who have their own hedging strategies, are always in the market for good quality holdings. The Multi Sector Bond ETFs are working in a highly demanding market, and they're also holding bonds which demand respect as assets. The medium term could spring some surprises on the upside for some of these ETFs, although any medium term scenario involving increased interest rates and stock market liquidity may pass this sector by.
Long term (5 years)
The long term, bluntly, looks bleak for the Multi Sector Bond ETFs. The world has changed since their models came out, and few can show anything like the performance of ICB. Five years could also seen knew challenges from the more dynamic, much higher performance, actively managed ETFs.
As income funds, they're really reflecting investment models of the 80s and 90s. There is a good market for this type of fund, particularly among retirees, but whether that qualifies as a survival strategy is doubtful. A class of ETFs has found itself the last horseshoe maker in town, and doesn't seem to know what to do about it. Their performance post crash has been largely abysmal, and they've been taking their own sweet time getting off their bottom prices.
Qualifiers to projections
Despite the gruesome probabilities if the Multi Sector Bond ETFs don't come up with a working model for the 21st century, these ETFs could reinvent themselves as a niche investment market. That seems to be where their main selling points have been, and there is a whole global demographic which could respond well to the general income and equity approach. Boomers and late Boomers have both the money and the inclination to buy into income earning assets, and the retirement phase for the Boomers starts in 2010.
The fact remains that as standard investment type ETFs, apart from ICB, the Multi Sector Bond ETFs just don't measure up. They don't do enough. Their appeal has to be something unique, because they're not structured for direct competition with other classes of ETFs, and they're in an exotic investment format, which many retail buyers don't necessarily understand or want to understand.
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Last Updated on: 2010-01-14 02:03:40 |
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