I’m back in my seat after spending a few days at the Inside ETF Conference. The conference was pretty upbeat despite the run we have seen in equities. The consensus is that the economy is going to grow at a pace above what we have seen the last decade, although it will not be a run-away economy where the Fed will have to put the brakes on it. It was interesting to hear a few industry leaders cite what we have also said the past few years, which is that even though regulations and lower taxes will be helpful, we are still in an environment of QE overseas and face the demographic issue of massive amounts of the world’s population retiring, thus likely reducing consumption/spending in many areas.
As per high yield, all of the fixed income panels I attended seemed to feel the same way, there doesn’t appear to be any fundamental issues that will disrupt the bond and loan markets, even though spreads are at levels that have spelled otherwise in past cycles. A few have cited that they were shifting their portfolios to higher quality as they feel that spreads may widen out a bit in 2018 but they also said that is causing duration indigestion (higher quality often has longer maturities and lower yields) as they feel the 10-year Treasury will creep up a bit more and they fear falling behind other managers as they will be losing coupon income as higher rated companies often have lower cost of debt.
Overall, my take was that most of the consensus was that investors should be in active management in 2018 because the expectation seems that the index-tracking products will likely only produce coupon income, with little to no upside in capital appreciation given where much of the index names are trading. Retail investors may be listening as outflows continue with the majority coming out of the index-tracking high yield ETF’s. The weekly number by Lipper will be out tomorrow after the close but it looks like another big week of outflows.
Oil is hitting a 37-month high giving investors a comfort in those credits. Large on the run names are a bit weaker today, while the rest of the market is unchanged and we believe is a bond picker’s world. As we go through earnings season, we believe you better get them right as the volatility is still there on a name by name basis.
For information on the AdvisorShares Peritus High Yield ETF (ticker HYLD), the actively managed high yield exchange traded fund that the Peritus team is sub-advisor to, please visit, www.advisorshares.com/fund/hyld, distributed by Foreside Fund Services, LLC.