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Opportunistic Bond Bets

Fixed-income is still one of those asset classes where sector positioning, duration targeting, and credit selection can make a huge impact on net returns.

Fixed-income is still one of those asset classes where sector positioning, duration targeting, and credit selection can make a huge impact on net returns, asserts David Fabian, money manager and editor of The Flexible Growth & Income Report.

As such, I’ve always been a big fan of actively managed bond funds as a way for investors to access risk managed or alpha-generating strategies.

Some of my favorites have been the DoubleLine Total Return Bond Fund (DBLTX) or the PIMCO Income Fund (PONAX). We have owned both for our clients and in our own accounts for years.

More recently, we have focused on their complimentary ETF portfolios via the PIMCO Active Bond ETF (BOND) and the SPDR DoubleLine Total Return Tactical ETF (TOTL).

That said, I’m constantly on the lookout for top-tier bond managers that make the lead to exchange-traded funds. This move typically brings with it lower management fees for investors along with the capability to access a capable and proven portfolio.

It’s this vigilance that brought the First Trust TCW Opportunistic Fixed Income ETF (FIXD) onto my radar several months ago. This fund was released on the First Trust platform with TCW Investment Management as the sub-advisor.

TCW is a west coast fixed-income manager that has been in existence since 1971 and has nearly $200 billion under management. They’ve been around the block and know their stuff.

FIXD is an actively managed ETF that seeks to invest primarily in corporate and government investment grade debt with the capability to carry some high yield and floating rate securities. It can also own derivatives (futures or swaps) to help reduce volatility or control specific risks.

They envision this fund to be a potential core holding or even a supplementary tactical option in more sophisticated portfolios. The FIXD net expense ratio is listed at 0.55%.

The current holdings number 225 with an effective duration of 5.63 years and a 30-day SEC yield of 1.60%. TCW is being a little more on the conservative side with over 1/3 of the portfolio holdings having a duration of fewer than 5 years.

The net composition is intriguing enough to set the fund apart from the index while still retaining overall correlation with the broad U.S. fixed-income market. It’s the type of fund that can quickly compete against the established players while seeking to carve out its own track record and message over time.

FIXD is an instantly viable candidate for owners of actively managed bond portfolios to begin monitoring. While not necessarily breaking new ground in its approach, the fund is backed by a solid research and investment team.

Five months is far too early to pass judgment on the performance of FIXD. My plan is to keep this fund on my watch list as it could ultimately end up as part of our portfolio.

David Fabian is Managing Partner and Chief Operations Officer of FMD Capital Management.

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