Evaluating Porfolio Risk in Fixed Income ETFs
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14 APRIL 2015 STRATEGIES FIXED-INCOME ETFs Evaluating Risk BY ERIC LEININGER SINCE BOND EXCHANGE-TRADED funds were introduced in 2002, in- vestors have used them as a way to efficiently access markets. In recent years, the development of special- ized funds offers more opportunities. You can now invest via ETFs in asset- backed paper, preferred securities, and bank loans, among other assets. The variety of funds can make it easier to construct portfolios that meet specific objectives. You can use the ETFs for core exposure, tactical adjustments, rebal- ancing, overlays, or as a so- called liquidity sleeve for ismaller cash balances. The Exchange Traded Funds function allows you to pursue specific strate- gies and assess costs, risks, and his- torical performance. Type ETF <Go>, click on the arrow to the right of As- set Class, and select Fixed Income. At the bottom of the screen, click on the arrow to the right of Group By and select Strategy to group your funds by that characteristic. You can use the tabs to quickly compare metrics and attributes. TO FIND THE most-liquid ETFs in a strategy such as preferreds, for ex- ample, click on the Liquidity tab. Click on the 30D Vol column head- ing to sort the list by average trading volume during the previous 30 days. Scroll down to the Preferred section in the list. Let’s say you wanted to do a deeper dive on the pre- ferred ETFs and compare their key rates. (Key rate du- ration is a measure of the sensitivity of a bond port- folio to a 1 percentage point change in yield at a given maturity while holding the other tenors con- stant.) First, click on the arrow to the right of Strategy and select Pre- ferred. Next, click on the Actions button on the red tool bar and select Type FREP <Go> to generate a report on a selected ETF.
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Transcript of Evaluating Porfolio Risk in Fixed Income ETFs
14 APRIL 2015
STRATEGIES FIXED-INCOME ETFs
Evaluating RiskBY ERIC LEININGER
SINCE BOND EXCHANGE-TRADED funds were introduced in 2002, in-vestors have used them as a way to efficiently access markets. In recent years, the development of special-ized funds offers more opportunities. You can now invest via ETFs in asset-backed paper, preferred securities, and bank loans, among other assets.
The variety of funds can make it easier to construct portfolios that meet specific objectives. You can use the ETFs for core exposure, tactical adjustments, rebal-ancing, overlays, or as a so-called liquidity sleeve for ismaller cash balances.
The Exchange Traded Funds function allows you to pursue specific strate-gies and assess costs, risks, and his-torical performance. Type ETF <Go>, click on the arrow to the right of As-set Class, and select Fixed Income. At the bottom of the screen, click on the arrow to the right of Group By and
select Strategy to group your funds by that characteristic. You can use the tabs to quickly compare metrics and attributes.
TO FIND THE most-liquid ETFs in a strategy such as preferreds, for ex-ample, click on the Liquidity tab. Click on the 30D Vol column head-ing to sort the list by average trading volume during the previous 30 days. Scroll down to the Preferred section
in the list.Let’s say you wanted to
do a deeper dive on the pre-ferred ETFs and compare their key rates. (Key rate du-ration is a measure of the sensitivity of a bond port-folio to a 1 percentage point
change in yield at a given maturity while holding the other tenors con-stant.) First, click on the arrow to the right of Strategy and select Pre-ferred. Next, click on the Actions button on the red tool bar and select
Type FREP <Go> to generate a report on a selected ETF.
APRIL 2015 1 5
click on the arrow to the right of By in the middle of the screen and select Sub-port-folio Level 1. If it isn’t available in your list of groupings, select [More Options] and click on the More button. Enter SUB-PORTFOLIO in the AVAILABLE FIELDS field and press <Go>. Click on the blue plus sign to the right of Sub-portfolio Level 1 and then on Save.
Comparing ETFs in PORT lets you quickly assess key rates, one of many ways you can use Bloomberg func-tions to achieve specific objectives for your ETF portfolio.
Type PORT <Go> to view key rates for the ETFs.
Eric Leininger is a fixed-income market specialist at Bloomberg in New York. [email protected]
Create Portfolio. Enter a name and a ticker for the portfolio, press <Go>, and click on Apply.
YOU CAN NOW analyze the funds as a group using the Portfolio & Risk An-alytics (PORT) function. Type PORT <Go>. Click on the arrow to the right of Port and select [More Sources]. In the list of portfolios, click on the name of the one you just created and then on the Select button. Click on the Settings button on the red tool bar and select Portfolio Look-Through so a check mark appears in the box next to it, if it isn’t already selected.
Next, click on the Characteristics tab and then on the Key Rates subtab. To keep the portfolio grouped by ETF,
DIG INTO A STRATEGY Select this in ETF to create a portfolio of ETFs you can analyze in PORT.
