Investors are always looking for new and safe investments during times of uncertainty. As debate intensifies over when the Federal Reserve will finally cut interest rates, many on Wall Street are turning to ETFs and bonds, which offer higher interest rates and lower risk.
Steve Raipley, BlackRock's Global Co-Head of Fixed Income ETFs, joins Yahoo Finance to discuss the best opportunities in the fixed income market in 2024 and what investors should focus on.
When asked about certificates of deposit and whether investors should stick with them, Leipley offered the following insight: “The Fed, at some point, will be able to determine what the market consensus is regarding future pricing. If you really believe that they will start cutting rates this year…but it looks like they will start cutting rates, so now is a good time to lock in this yield. It can be debated whether a rate cut lowers all yields. However, the long-term investment with a yield of 4% is still very attractive compared to before. There are many ways to do that. You can allocate to a broad range of markets, including through Agg (iShares Core US Aggregate Bond ETF, AGG) and Universal IUSB. (IUSB) Or, if you want a more aggressive approach, you could allocate something like the BINC (BINC) Flexible Income Fund or BlackRock Total Return (BRTR). What we do know is that investors are being cautious during this tightening cycle. Since we are way below our allocated bond, we think it's time to start cashing out. ”
For more expert insights and the latest market trends, click here to watch the full episode of Yahoo Finance Live.
Editor's note: This article was written by Nicholas Jacobino
video transcript
– In 2023, more than $300 billion flowed into bond ETFs. This is a record number. The following guest companies accounted for nearly half of that amount.
So where are the opportunities in the fixed income market now that investors are moving away from cash? For answers, check out Steve Raipli, BlackRock Global Co-Head of iShares, Fixed Income and ETFs. welcome. Steve, nice to meet you. So let's start here, Steve. As we start this year and look around the world of fixed income ETFs, Steve, where do you see opportunities?
Steve Ripley: Josh and Julie, thank you so much for joining us today. We see a huge opportunity. So last year, with a very strong tightening cycle, was one of the most difficult bond markets in years.
But the benefit was that they could earn yields at levels not seen since before the crisis. Last year was a very unstable year. But interestingly in the end, AGG's return as a rough proxy for the broader bond market exceeded his 5.5%.So
Where we are today is that this opportunity still exists. Yield is over 4%. Pre-COVID-19, you had to go all the way down to high yields to get a 4% to 5% yield.
And now we can do that on the front end of the yield curve. That being said, we think it's time to move away from cash. We think it's time for investors to increase their allocation to fixed income.
In any case, I think it's a good time to keep your income fixed at this level and prepare for the Fed to start cutting interest rates. And I think a lot of investors are still circling this idea of a soft landing because potentially the economy could soften. But regardless, it's time to lock in those yields and increase your fixed income allocation to balance your portfolio.
– And Steve, let me make a small point about this. If you can buy CDs for 5%, what's the problem at this point?
Steve Ripley: it still works. But if we believe the market consensus and futures pricing, the Fed will start cutting rates at some point this year. There is great debate as to whether it will start in March.
However, there seems to be a good chance that they will start cutting interest rates. So now is a good time to lock in these yields. It is debatable whether a rate cut will reduce all yields.
However, the long-term yield of 4% is still very attractive compared to before. There are many ways to do that. Can be assigned to a wide range of markets, such as through AGG, AGG, or Universal USB.
Alternatively, if you want a more active approach, you can allocate to something like BNC, a flexible income fund, or BlackRock Total Return (BRTRM). So what we do know is that investors have been cautious during this tightening cycle. These have significantly lower allocations to fixed income. So we think it's time for them to run out of cash and start replenishing that allocation.
