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By Meg Flippin Benzinga
The economy seems to be humming along, and corporate profits seem to be proving resilient. At the same time, cash balances among publicly traded companies are increasing and the spread between corporate bonds and comparable Treasuries remains low. So much so that in October the gap narrowed to a nearly twenty-year low. That’s good news. When spreads are tight it means risk is down and corporations don’t have to pay a bigger yield to entice investors.
Then there is the prospect of deregulation under a Trump Administration, which could help companies make more money and hoard extra cash. And let’s not forget what may come from the Federal Reserve. While more hawkish, it still expects to cut interest rates twice in 2025. Add low unemployment and rising wages to the mix and it all bodes well for the corporate bond market, which ended 2024 on a high note. While this year may not be an exact repeat, Wall Street watchers expect the good times to last throughout 2025.
“Strong fundamentals, rich valuations,” is how Charles Schwab described the corporate bond market heading into 2025, pointing to investment-grade corporate bonds as an attractive area of the market for income seeking investors. After all, investment grade corporate bonds have average yields of 5.6%.
“Like the resilient economy, corporations generally remain strong as profits grow and cash balances rise. That's been a key driver of the outperformance so far this year, as falling credit spreads have pulled up corporate bond prices relative to Treasuries. All credit-related sectors have outperformed Treasuries year to date, with riskier, low-rated investments performing the best,” wrote Charles Schwab in its corporate bond market outlook.
Infrastructure Capital Advisors Launches New Bond ETF
Investors who want to get exposure to the corporate bond market in the new year may want to give the Infrastructure Capital Bond Income ETF (ARCA: BNDS) a look. Launched last week by Infrastructure Capital Advisors, a provider of investment management solutions designed to meet the needs of income-focused investors, the ETF is actively managed by Infrastructure Capital Founder, CEO and Portfolio Manager Jay D. Hatfield and Portfolio Manager Andrew Meleney. Together they have over thirty years of experience in the securities and investment markets. In addition to the Infrastructure Capital Bond Income ETF, Hatfield runs the InfraCap Small Cap Income Fund (NYSE: SCAP), InfraCap Equity Income Fund ETF (NYSE: ICAP), InfraCap MLP ETF (NYSE: AMZA), InfraCap REIT Preferred ETF (NYSE: PFFR), Virtus InfraCap U.S. Preferred Stock ETF (NYSE: PFFA) and a series of hedge funds. Infrastructure Capital Advisors reports it manages more than $2 billion in total assets.
Just like Charles Schwab, Infrastructure Capital Advisors is also bullish on the bond market this year, even if there was a recent selloff in 10-year Treasuries on the heels of the Fed’s more conservative approach to interest rate cuts, predicting the 10-year yield will move into the 3.5% to 4% range during the first quarter. Infrastructure Capital Advisors is also undeterred by talk of rising inflation due to tariffs or government policies, arguing inflation is caused by excessive monetary growth and energy shocks not government policies.
Capital Appreciation Through Corporate Bonds
The Infrastructure Capital Bond Income ETF seeks to maximize current income and pursue strategic opportunities for capital appreciation, investing at least 80% of its total assets in fixed-income securities, largely focusing on corporate bonds. The ETF will also include muni and government bonds in its portfolio. Meanwhile, up to 20% of the fund may also be invested in equities, although the fund is focused largely on corporate debt. The fund uses a mix of quantitative and qualitative analysis with an emphasis on fixed-income securities that managers believe are undervalued based on several factors including term premium, credit premium, liquidity premium, industry, sector and market capitalization, reports Infrastructure Capital Advisors.
“There continue to be opportunities to find both alpha and compelling income in the fixed income markets. The key however is in knowing where to look,” said Hatfield. “We believe active management is essential for successful income investing. Through vigilant risk management, and by focusing on interest rate, credit, and call risks, BNDS is poised to benefit from our active management process. I am very excited for us to be introducing BNDS and look forward to all of the conversations we will have with investors and advisors about the role BNDS can play in their portfolios.”
So far, the markets are starting the year in a position of strength, with yields above 5%. That’s good news for investors seeking income, but it may not last. With high inflation, historic low yields on traditional stock market benchmarks and projected interest rate cuts, it’s getting tougher for today’s income investor to find better payouts. Infrastructure Capital Advisors is aiming to take advantage of these market issues with the launch of the Infrastructure Capital Bond Income ETF. To learn more about BNDS, click here.
Featured photo by Scott Graham on Unsplash.
Benzinga is a leading financial media and data provider, known for delivering accurate, timely, and actionable financial information to empower investors and traders.
This post contains sponsored content. This content is for informational purposes only and is not intended to be investing advice.
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