Investors seeking fixed-income exposure have a couple of new FundX exchange-traded funds (ETFs) to weigh up.
The veteran San Fransicso-based asset manager, which became a subsidiary of One Capital Management last year, has converted two of its mutual funds into ETF products, listing them on the New York Stock Exchange, Arca, on Monday, October 9.
The first fund, XLFX, holds a mix of bond funds and total return funds. XLFX aims to dynamically allocate the fund’s allocation to adapt to fluid bond market conditions and interest rate changes. FundX claims is well-suited to investors seeking fixed-income stability as a shelter against equity volatility.
The latter, XRLX, gives more equity exposure tampered with bonds. Roughly half of the portfolio is in core stock funds. It also gives opportunistic exposure to a basket of total return and bond funds. XRLX is designed for investors looking for the growth potential of stocks with the lower volatility of fixed income, per FundX.
Fix Me Up
Tightening monetary policy has set the scene for a revival in fixed-income products.
VettaFi’s head of research, Todd Rosenbluth, says “There has been growing demand for fixed income ETFs in 2023.”
Rosenbluth noted the “category pulled in more than 40% of the industry’s new money” year to date as of September 30, “despite representing only 20% of the market.”
Ever-increasing interest rates have proven irresistible to investors this year. Investors have been stashing away more cash in money market funds (MMFs), even as equities have recovered from last year’s lows. By July, the total sitting in US-based money market funds surpassed $5 trillion.
BlackRock sees MMFs as just a stopover destination, though. The world’s largest asset manager predicts the bulk of that cash mountain will fly on to fixed-income instruments once the Fed is done hiking.
“There is finally income to be earned in the fixed income market and we are expecting a resurgence in demand,” Rob Kapito, president of BlackRock, told the Financial Times. “There are trillions . . . that are ready, when people feel rates have peaked.”
These two new funds reflect another trend. More fund managers are repackaging their mutual funds into an ETF wrapper.
According to data from Morningstar Direct, 37 actively managed mutual funds were converted to ETFs from early 2021 to early 2023. Just this August, JP Morgan switched four more mutual funds to ETFs, storing a total $1.5 billion in capital.
Asset managers are just following investor preference. Mutual funds, once the mainstay of investor portfolios have been in steady decline for years and hold a shirking percentage of all assets. As Boardrige’s research shows, they’re becoming less popular across a range of investor groupings, including the young, the wealthy, and active households.
In sizing up these ETFs, investors will be assessing what level of bond exposure makes sense for their investment strategy and whether these newly-converted funds are worth their comparatively high management fees.
XFLX and XRLX have net expense ratios of approximately 1.57% and 2.02%, respectively.