35 days away from the next Fed meeting, but who's counting?
Well, CME Fed Watch currently has the odds the central bank will cut rates at over 90%, almost as sure a thing as Powell opening up his speech with the words good afternoon.
Well, if the Fed easing cycle recommences, it will be interesting to see what happens with Fed income ETFs.
These products serve as a defensive anchor in portfolios as they invest in government bonds, corporate.
Bonds, asset-backed securities, and cash.
They can be attractive during rising rate environments due to their income generation and capital preservation qualities.
Joining me this morning to break this down is Tom Kearney, co-head of fixed income and portfolio manager for White's Investment Management.
Good morning, Tom.
Thank you so much for joining me.
So what are your thoughts on the current market environment in terms of inflation as well as the labor market and what does all of this mean for the Fed going forward?
Well, we've, when it comes to inflation, we've had data points this week in CPI which seemed to suggest inflation, at least as of yet, hasn't been.
As high as some might have feared post the Liberation Day news, so-called Liberation Day news on tariffs, so that the CPI number really pointed toward an inflationary environment that seems rather tame, not necessarily at the level that the Fed particularly likes.
Their long term goal of having a 2% sort of core sort of number, we're still elevated above that.
But the bond market is looking through all of that and seeing the economic data points around labor and otherwise and have responded by certainly pressing down the front end, particularly in the out to at least 10 years to see that rates have declined year to date, essentially anticipating the Fed needs to make a cut to short-term interest rates.
We'll get a PPI.
A number tomorrow that provides more data points, but it sure seems like that the path for the Fed is likely lower interest rates sometime this year.
Yeah, and Tom, we've been keeping a close eye on the bond market, both the short and the long end, especially on the heels of last week's Treasury auction, but would a September rate cut put fixed income ETFs under pressure? it really probably depends on the structure of the ETF, what they hold.
We're pleased to be launching even today our first for our firm ETF, the Whites Core Plus bond ETF symbols WCPB.
Very excited to continue to do what we've done for over a couple decades in managing fixed income.
And while all these data points are important for us, our job is to be very flexible, look for opportunities wherever we can find them, and the ETF allows us to reach an audience of investors that might not otherwise have invested in, for example, our mutual core plus bond mutual fund, but this is going to be a natural extension of what we otherwise do.
That we'll be able to have the flexible mandate to look both inside the indexes, outside the indexes, whether it's in corporate bonds or asset-backed securities, certainly finding more value overall in that sort of environment at the at the present moment.
But I think for us we're able to navigate all kinds of different market environments or we strive to do that whether it's in a higher inflationary environment.
Higher credit spread environment and certainly interest rates, how they move up and down over time.
Our job is to just try to look for the best opportunities we can for our investors and ourselves, and the ETF is just a natural extension.
Very excited about having this opportunity for investors to see the kind of investments that we make here at White's.
Yeah, and Tom, in midweek New York morning trade, we are looking at the Nasdaq and S&P 500 extending all-time highs yet once again.
All of the major stock averages are up by at least 0.5% today.
So when we're talking about portfolio adaptability in action, what does that actually look like?
It's every day coming in, uh, looking at what the market offers you in terms of opportunities.
Uh, Warren Buffett is probably famed for speaking in baseball language at times, saying that there's no such thing as a A cold strike in investing and so our job is to come in every day and look for what we think is the most attractive opportunities, whether it's in corporate bonds, asset-backed securities, agency mortgage backed securities, even US Treasuries that we have the opportunity to take advantage of opportunities wherever they present themselves.
So we're, we're certainly, we like to think very patient investors, look for what we think are the fattest pitches for us to swing at, and Yeah, for us at the moment we see an environment in, for example, the corporate bond market that have the tightest credit spreads that we've seen certainly in investment grade in over two decades.
So there seems to be a fair bit of optimism, if you will, or maybe other people might call it complacency in terms of investor behavior, willing to accept much lower credit premium.
So for that, in that environment we're willing to be patient and just look for look for much better, richer opportunities, and that's the benefit we think of our approach, very flexible.
We can, we can lean into index eligible investments or outside of that, and we're certainly at present finding much more attractive valuations in the asset backed the structured investment part of the bond market, many of which are not necessarily represented in the in the indexes like the Bloomberg aggregate index.
Well, Tom, we will have to leave it there for today, but thank you so much for joining me this morning and thank you so much for sharing all of your insights.
Thank you, Remy.
Wishing you a good day.
