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Go to www.investopedia.com and login by using the user: danielfin485 password:Trojan49er!
3) At the header at the top of the page, go to “Simulator”; under “Simulator”, click on “My Games”
4) On the page that opens, on the toolbar near the top of the page, click on “Join Game”
5) Where it asks for “Game Lookup”, enter the Title for the game, shown just below “F485 Bond Portfolio 2024 Spring”
Based on your team’s economic and interest-rate outlook, and given the context of the fixed-income sector breakdown of the Bloomberg aggregate bond index, describe your team’s target sector breakdown for the fixed-income portfolio simulation, in terms of fixed-income segment, target duration and range of allowable durations for ETF holdings, and target credit quality and range of allowable credit qualities for your ETF holdings.
What specific ETFs is your team choosing within each segment, and how did your team decide on those specific ETFs?
here the doc is an example of one of my team member and what he wrote it, please see it as an example and write 2 pages of it base on your knowledge adding diagram is acceptable.
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JPMorgan BetaBuilders USD Investment Grade Corporate Bond ETF BBCB
(Daniel Heinrich)
Figure 1.0 (Google Finance)
Inflation and interest rates will be going down, leading to this ETF’s success. Bond prices and interest
rates have an inverse relationship. As shown in figure 1.0, the price of the BBCB ETF began decreasing
substantially in 2022. “Much of the stock [and bond] market’s movement since 2022 was driven by
Federal Reserve (Fed) monetary policy. The bear market of 2022 was, in large part, the market’s reaction
to the Fed choosing to raise the short-term federal funds target rate it controls. Those actions were in
response to a sudden inflationary surge.” (usbank)
My selection is also based on the theory of buying low and selling high. While BBCB has not reached an
absolute low, it has relatively. It seems to be on an uptrend as well, moving away from support levels,
starting in 2024 due to news of interest rate cuts and inflation reaching the Federal Reserve’s target of
2%.
Furthermore, my selection was made after assessing the risk of the portfolio. As shown in figure 1.1,
while this ETF is corporate investment grade, it is made up of BBB and A bonds; these are towards the
low end of the low risk spectrum allowing for good returns and a moderate amount of risk.
figure 1.1 (JP Morgan)
Vanguard Long-Term Treasury Index Fund ETF VGLT
(Daniel Heinrich)
Figure 1.0 (Google Finance)
Corporate bonds are not the only security that suffered in 2022 due to rising inflation and therefore
interest rates; treasury ETFs decreased in value as well.
It should be noted that long term securities have a maturity that is greater than one year. Long term
treasuries are the riskiest type of treasury, so to a risk accepting investor looking for the security of the
backing by the federal government and aspirations of the Bloomberg aggregate index this is a great
selection.
Relative to other long term treasury ETFs, this security is unique. It is unique in the distribution by
maturity. As shown in figure 1.1 this fund is very high risk relative to long term treasuries.
Figure 1.1(Vanguard)
Upon examination of coupon rates, it seems that rates (3%) are hovering around the expected level of
interest rates assuming interest rate cuts occur. For those investors expecting rates to decrease this is a
good investment that is already pricing it into operations. Due to news on rate cuts we can see a slight
uptick in ETF price in 2024.
Additionally my selection is also based on the theory of buying low and selling high. VGLT is near an
absolute low. It seems to be on an uptrend as well, moving away from support levels, starting in 2024 due
to news of interest rate cuts and inflation reaching the Federal Reserve’s target of 2%.
IShares MBS ETF (MBB)
With interest rates expected to go down we may see this ETF go up, due to homeowner’s
wanting to refinance their mortgages since it would allow for lower monthly payments as well as
shortening their term. The shortening of mortgages, hence the shortening of MBS, is very
beneficial as one of the drawbacks of MBS’s is that they are some of the longest maturities of
any security, as it takes a very long time to pay off homes.
This also applies to new homeowners who may be looking to get into the housing market at this
time, especially since Generation Z is expected to enter the workforce and may be looking for
homes. “… Gen Z – currently accounts for about 2 billion of the world’s population and is
expected to represent 27 percent of the workforce by 2025.” Due to this I believe that there will
be a increase in intermediate maturity mortgages, as Gen Z will just start creating their
mortgages with lower interest rate and shorter terms than the long terms from pervious
generations.
The breakdown of the MBB leans more towards the intermediate maturity with 70.72%
of their holdings being in the 7-10 year maturity range, due to this I believe that the MBB is in a
good position to take advantage of the economic impact that Gen Z will have.
Vanguard Short-Term Inflation-Protected
Securities ETF (VTIP)
TIPS etfs are very beneficial to all investors as it provides a safe haven from inflation. Adding
this into our portfolio will allow for us to reduce our volatility and risks, due to the other ETF’s
in our portfolio leaning towards longer maturities. The distribution of the fund leans towards the
longer side of the shorter maturities, with almost 50% of the etf being in the 3-5 year maturity.
This adds to the risk we are taking since the longer the maturity the higher the risk. The ETF has
been valued at the lowest its been since 2020, and with news that interest rates wont be cut until
inflation has reached it goal, I expect to see an increase in the value of the etf. However, the
index is having their returns soon so I hope to take advantage of this.
References
(Daniel)
https://www.google.com/finance/quote/BBCB:NYSEARCA?sa=X&ved=2ahUKEwjCxePOmt6EAxVNEkQIHcH6CSEQ3e
cFegQIDhAf&window=MAX
https://www.usbank.com/investing/financial-perspectives/market-news/is-a-market-correctioncoming.html#:~:text=Narrow%20market%20leadership,funds%20target%20rate%20it%20controls.
https://am.jpmorgan.com/us/en/asset-management/adv/products/jpmorgan-betabuilders-usd-investment-gradecorporate-bond-etf-etf-shares-46641q449#/portfolio
https://www.google.com/finance/quote/VGLT:NASDAQ?sa=X&ved=2ahUKEwi1iJ_Bsd6EAxX2I0QIHenoDzQQ3ecFeg
QIGxAf&window=MAX
https://investor.vanguard.com/investment-products/etfs/profile/vglt#portfolio-composition
(ian)
https://www.ishares.com/us/products/239465/ishares-mbs-etf
https://fastercapital.com/content/Mortgage-Backed-Securities–Evaluating-Term-to-Maturity-inHousing-Markets.html
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