Introduction

As Treasury yields hit generational highs this week and the U.S. labor market adds more jobs, investors are seeking ways to take on risk and boost their income. This can be achieved through active management or investing in junk bonds. In this article, we will explore the new Pimco Multisector Bond Active ETF (PYLD) and other similar funds that have recently been launched.

Pimco Multisector Bond Active ETF (PYLD)

The Pimco Multisector Bond Active ETF (PYLD) was launched in June, offering investors a way to follow one of the biggest names in fixed income during the volatile bond market. While the fund has not yet made its first distribution and thus has no official yield, its top holdings include mortgage-backed securities and corporate bonds with coupons above 5%. The fund aims to provide flexibility and liquidity to investors, allowing them to shift between asset classes and industry sectors. However, it’s important to note that past success does not guarantee future outperformance.

Other Multisector Bond Funds

The Pimco Multisector Bond Active ETF is part of a larger trend in the fixed income ETF market. Other major asset managers have also launched multisector bond funds, including Capital Group’s U.S. Multisector Income ETF (CGMS) and BlackRock’s Flexible Income ETF (BINC). These funds offer 30-day SEC yields of 6.42% and 5.65%, respectively. It’s worth mentioning that while active management can provide potential returns, it also comes with a higher expense ratio compared to bond index funds.

Investment Decisions and Schwab High Yield Bond ETF (SCYB)

For financial advisors or investors who prefer to make investment decisions themselves, there are more targeted bond funds available. One upcoming ETF expected to launch next week is the Schwab High Yield Bond ETF (SCYB). This fund will track an index of junk bonds that are currently more attractive due to the resilience of the U.S. economy and the starting yield of broad high yield index yields. The Schwab fund offers a low expense ratio of 0.10%, making it cheaper than similar offerings from iShares (HYG) and State Street (JNK).

Considerations and Low-Cost ETF Options

While these new bond ETFs are entering the market amid a strong first half for flows, it’s important to consider the potential for a recession and slower job growth. However, for investors who prefer safer sectors of the fixed income market, such as Treasurys, there are low-cost ETF options available from Schwab and its competitors. Overall, the fixed income ETF market is expected to experience continued growth, driven by demographic tailwinds and increased investor allocation to fixed income assets.

Conclusion

The Pimco Multisector Bond Active ETF (PYLD) and other similar funds provide opportunities for investors to take on risk and boost their income through active management or investing in junk bonds. While past performance does not guarantee future results, these funds offer flexibility and liquidity to adapt to changing market conditions. For investors who prefer to make their own investment decisions, the upcoming Schwab High Yield Bond ETF (SCYB) offers a low-cost option. Overall, the fixed income ETF market is growing and attracting more investors, driven by various factors such as Treasury yields and demographic trends.