Good morning and happy Monday.
Bow, WOW!
Dog is man’s best friend, and this asset manager is hoping its ETFs will be the same for investors.
Corgi Funds launched 28 actively managed products last week, targeting sectors including, aerospace and defense, computing and technology, energy and infrastructure, consumers, healthcare, industrials and geographic regions. All the funds are listed on the Cboe BZX Exchange. Interestingly, asset management isn’t Corgi’s only business. It’s actually an AI-native insurance startup. Plus, it runs a 24/7 cafe in San Francisco.
We’re guessing the menu’s topsellers are the puppuccino, the Americano foxhound and the cafe au lab.
BlackRock’s New ETF Goes Long on Emerging Market Bonds. Not Everyone Agrees
Weak may be the new strong.
Emerging market bonds are expected to outperform again this year, Michel Aubenas, BlackRock’s chief of EM debt, said in a recent interview. A weaker US dollar is expected to contribute, improving the conditions for investing in emerging market bonds. In April, BlackRock launched a new active fund, the iShares $ EM Bond Active Ucits ETF (ISOV) to capture some of that investor interest. However, yield spreads, or the difference between yields on different debt instruments, are already tight. It’s an interesting corner of the market that some experts believe could benefit investors in the back half of the year.
Chris Getter, emerging markets strategist at the alternative asset manager Simplify, said tight spreads are probably more concentrated at the higher end of the rating spectrum, such as countries in the Middle East like the UAE, Qatar and Kuwait. “If you want to get [higher] yield in EM, you’re starting to reach pretty far down the [credit] quality spectrum,” he added, to countries like Ukraine.
Hit Me Hard and Soft (Currency)
Then, there’s the choice between local debt, which responds to changes in the domestic currency rate, and hard-currency debt, issued in more stable currencies, like dollars or euros. Local debt often carries a higher yield, but it comes at the cost of higher volatility and risk, said Matthew Bartolini, global head of research strategists at State Street. But there are benefits to both forms of debt. “EM debt can be a diversifier more than hard currency debt,” he said, since local bonds can offer exposure across several regions and currencies rather than just the dollar.
Emerging market debt should never occupy more than a “satellite exposure” of 2% to 10%, Bartolini added. The largest ETFs that invest in emerging market debt are:
- The iShares JPMorgan USD Emerging Markets Bond ETF (EMB), which has $14 billion in assets and is up 1.37% this year.
- Vanguard’s Emerging Markets Government Bond ETF, which manages $6 billion and is up 1.23%.
- The VanEck JPMorgan EM Local Currency Bond ETF, which sits at $4 billion in assets and is up 1.27%, according to VettaFi data.
Emerging Allocations: In the long run, EM yields are unlikely to outperform indexes, Getter said. “People continue to like EM. There’s good reasons for that,” he added. “But I think given the starting point of an index yield, which is today somewhere around six and three quarters — I’m not jumping up and down about this.”
For Your Clients: Explore the Features of ETFs
In 1924, MFS launched the first US open-ended mutual fund, a revolutionary idea that gave ordinary people access to professionally managed, diversified investments. This sparked a global industry that has created wealth for millions of people and changed the way we live. For 100 years, MFS has continued to evolve with investors’ needs, which is why we launched our actively managed ETFs. Use this brochure with clients to explore the features that make ETFs a powerful vehicle for long-term investing, including tax efficiency, trading flexibility, and transparency.
Some ESG Funds Are Booming. That’s Not the Whole Picture
Cleanup on aisle Energy.
Some clean energy funds have outperformed this year, particularly the First Trust Nasdaq Clean Edge Smart Grid Infrastructure Index Fund, or GRID, which invests heavily in electric infrastructure. The fund has raked in more than $3 billion since the start of the year, according to a recent Bloomberg report. Other exchange-traded funds with an environmental, social and governance focus, like Invesco’s Solar ETF (TAN) and First Trust’s Global Wind Energy ETF (FAN), are up 18% and 31% year to date, respectively. But while ETFGI reported the total assets in this category to be nearly $800 billion and steadily increasing, data from Fuse showed net sales from last year to be in the red for both diversified and themed ESG products.
“ESG has faced political scrutiny, which has prompted many managers to rename or refine the focus of their strategies,” said Cindy Zarker, client relationship manager at Fuse Research Network. “Funds that could be used as core holdings in portfolios, like the State Street SPDR S&P 500 ESG ETF, [had] outflows last year and year to date, even though it has a five-star rating from Morningstar.”
ESG, Then and Now
Part of the issue is that there isn’t a widely agreed-upon definition of what counts as ESG, and performance across different metrics is inconsistent. The current outperforming funds aren’t the diversified, core portfolio offerings of yore but instead more tactical, specific and themed products, said Steven Foy, SVP of trading at Tidal Financial Group. Traditionally, diversified ESG products were tech-heavy and functioned as core holdings. Now, these funds are more thematic and include leveraged single-stock products, which help investors “capitalize on specific trends instead of relying on generalized frameworks like traditional ESG.”
Some of the largest ESG funds have had mixed performance year to date:
- The aforementioned GRID manages $7.6 billion and is up 24.8%.
- The Nuveen ESG Large-Cap Growth ETF (NULG), which holds $2.3 billion in assets, is up 6.8%.
- The iShares ESG US Aggregate Bond ETF (EAGG) has $4.6 billion in assets but is down 1%.
Where to Go from Here? With AI data centers and the current war in Iran driving up the price of energy, the focus should be on which themes will be the best long-term investments rather than ESG per se, Zarker said. “[Interest in ESG] is more because of things like AI, bitcoin mining and the war in Iran. All of those things [focus] on… this whole electric grid build-out, the need for less reliance on oil, and all those kinds of things,” she said. “So it’s more thematic than ESG.”