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BondBloxx Midyear 2024 Fixed Income Market Outlook

Ride the yield wave, but don't paddle too far out the curve just yet

July 15, 2024

This piece provides a recap of fixed income markets in the first half of 2024, our views on what’s ahead, and investment ideas to help investors position their portfolios amid Federal Reserve (Fed) policy and election season uncertainty.

Our top fixed income investment ideas

Goal ETF it
Give yourself more credit Our top pick: capture the highest yield in fixed income from diversified CCC rated high yield bonds XCCC
Access yields near 13-year highs from the persistent investment grade outperformer,1 BBB rated corporate bonds BBBS
Ride the yield wave Generate income and manage liquidity with short-term U.S. Treasuries XHLF
Position for Fed policy actions with intermediate-term U.S. Treasuries XTWO
Look beyond munis Seek to maximize after-tax total return with an active tax-aware strategy TAXX
Find value off the beaten path Diversify internationally with compelling yields from short-duration emerging market bonds XEMD

First Half 2024 Recap

In the first half of 2024, the U.S. economy moderated from the robust growth of late 2023 but remained more resilient than other developed economies. While Gross Domestic Product (GDP) growth slowed, key indicators like consumer spending, employment levels, and business investment remained solid. However, hotter-than-expected inflationary pressures persisted, driven by factors such as strong consumer spending, rising housing costs, elevated energy prices, and supply chain disruptions. In our view, the Federal Reserve (Fed) acted appropriately by maintaining the federal funds rate at 5.50% and scaling back their 2024 rate cut projections.

Yields across fixed income asset classes rose as investors recalibrated their expectations for fewer rate cuts and later timing. The U.S. high yield market extended its two-year trend of outperformance, leading fixed income asset classes year to date, driven by higher coupon income, supportive fundamentals, and lower interest rate sensitivity (Figure 1). Persistent inflation and rising yields negatively impacted long-duration exposures, with long-term U.S. Treasuries, investment-grade corporates, and the U.S. Aggregate index experiencing depressed total returns.

FIGURE 1 – Fixed Income Asset Class Performance Year-to-Date 2024

Source: ICE Data Services as of 6/30/2024. The indices represented in this chart include the ICE BofA U.S. High Yield Index, the J.P. Morgan EMBI Global Diversified Index, the ICE BofA U.S. Corporate Index, the ICE BofA Broad Market Index, and the ICE BofA U.S. Treasury Index. An investment cannot be made in an index. Past performance does not guarantee future results.

Our Outlook

Economic resilience = fixed income opportunities

We expect the U.S. economy to remain resilient in the current high interest rate environment.

Regarding interest rate policy, we do not view the current rate levels as overly restrictive. The Fed is likely to keep rates elevated until inflation shows sustained moderation below the current low 3% range, and we agree that maintaining higher rates for longer is necessary to tackle stubborn inflation.

Our optimistic view on select areas of the fixed income market is supported by several resilient economic indicators:

  • The U.S. unemployment rate remains stable near 4.0%, with the jobs market strong despite some softening.
  • While inflation-adjusted retail sales statistics have started to weaken, consumers spending continues, supporting GDP growth (Figure 2).
  • Corporate balance sheets across investment grade and high yield are generally well-positioned to weather potential economic slowdowns.
  • We expect U.S. high yield defaults will stay at or below the long-term average of 4% for the remainder of the year. The BB-rated bias of near-term debt maturities and strong fundamentals should prevent a severe default cycle.
FIGURE 2 – Quarterly U.S. GDP Since the COVID Lockdown

Source: Bloomberg Data Services, as of 6/30/2024. Source for the Q2 2024 GDP estimate is the Atlanta Federal Reserve.

Outlook by Asset Class

U.S. High Yield Corporates

Give yourself more credit with CCC rated high yield bonds, still our top pick
  • Our view: Consistent with our view since the last quarter in 2022, we expect U.S. high yield bonds to continue to outperform within fixed income, with compelling yields and strong fundamentals (Figure 4).
  • Corporate fundamentals: Stronger fundamentals for U.S. high yield remain a clear differentiator this cycle, with average credit quality still near all-time highs. High yield corporate balance sheets remain well-positioned. Issuers continue to actively address their debt maturities, reducing the chance for a significant rise in corporate defaults.
  • Performance: U.S. high yield performance was led by BBs (+2.5%) and single-Bs (+2.5%) during the first half of 2024, as the elevated coupon income generated by these credit rating categories more than offset modest price declines experienced during the time period. Among high yield industry sectors, Healthcare and Energy were outperformers, returning 5.0% and 4.4% respectively.
  • Investment ideas: We suggest that investors consider the BondBloxx XCCC ETF to capture the highest yield available in U.S. fixed income markets and attractive total return potential. Figure 3 provides more ideas for using specific credit rating high yield bond ETFs to align with your goals.
FIGURE 3 – Investment Ideas for BondBloxx U.S. High Yield Credit Rating Category ETFs
Goal ETF Name Ticker
Elevated yields with the most balance sheet strength. BondBloxx BB-Rated USD High Yield Corporate Bond ETF XBB
Attractive coupon income with yield pick-up over BB’s. BondBloxx B-Rated USD High Yield Corporate Bond ETF XB
Access the highest yield available in U.S. fixed income markets while reducing the risk of individual CCC-rated corporate bonds. BondBloxx CCC-Rated USD High Yield Corporate Bond ETF XCCC
FIGURE 4 – Yield-to-Worst by U.S. High Yield Credit Rating Category and Industry Sector

Source: ICE Data Services, as of 6/30/2024. The indices represented in this chart include the ICE Diversified U.S. Cash Pay High Yield Rating Category Indices, and the ICE Diversified U.S. Cash Pay High Yield Sector Category Indices. Past performance is not indicative of future results. It is not possible to invest in an index.

Investment Grade Corporates

Give yourself more credit with BBBs, the persistent investment grade outperformer
  • Our view: BBB corporates are our number one pick in the U.S. investment grade universe, reflecting their excellent corporate fundamentals and yields still near-13-year highs.
  • Corporate fundamentals: BBB corporate fundamentals remain strong, supported by healthy earnings, ample interest coverage ratios exceeding 7x, and manageable debt levels. BBB corporate balance sheets are extremely well-positioned to manage a potential economic slowdown over the coming year.
  • Performance: The persistent long-term outperformance track record generated by BBB corporate bonds has been driven by the category’s historically higher average coupon income (Figure 6) compared to broad U.S. corporate indices. Year-to-date 2024, the shorter duration BBB 1-5 year maturity range has outperformed other investment grade categories.
  • Investment ideas: Short BBB exposure with the BondBloxx BBBS ETF may help investors capture attractive yield and total return potential, with less performance volatility than longer duration investment grade bonds. Figure 5 provides more ideas on using BBB corporate bond ETFs to align with your goals.
FIGURE 5 – Investment Ideas for BondBloxx BBB Corporate ETFs
Goal ETF Name Ticker
Seek current higher yields with relatively low risk in short-term corporate bonds when expecting stable rates. BondBloxx BBB Rated 1-5 Year Corporate Bond ETF BBBS
Mitigate reinvestment risk and capture potential yield advantages while maintaining similar duration compared to US Aggregate index funds in anticipation of interest rate cuts. BondBloxx BBB Rated 5-10 Year Corporate Bond ETF BBBI
Capitalize on the potential for falling interest rates and long-term returns. BondBloxx BBB Rated 10+ Year Corporate Bond ETF BBBL
FIGURE 6 – BBB Corporate Maturity Range Indices 20-Year Annualized Returns

Source: ICE Data Services, as of 6/30/2024. The indices represented in this chart include the ICE BofA BBB 1-5 Year US Corporate Index, the ICE BofA BBB 5-10 Year US Corporate Index, and the ICE BofA BBB 10+ Year US Corporate Index. Past performance is not indicative of future results. It is not possible to invest in an index.

U.S. Treasuries

Ride the yield wave, stick to short-to-intermediate
  • Our view: Capture the yields of short-to-intermediate U.S. Treasuries and avoid the choppy waters of the long-end of the curve due to Fed policy uncertainty (Figure 8).
  • Performance: The shorter end of the U.S. Treasury curve experienced the best performance in the first half of 2024, with still elevated yields and low volatility. The long end of the U.S. Treasury curve experienced negative performance in the first half, as long-dated U.S. Treasuries sold off since year-end 2023 due to higher-than-expected inflation.
  • Investment ideas: The BondBloxx XHLF ETF offers attractive yields and can be used to manage liquidity. With probable Fed action later this year or early in 2025, we recommend that investors step out on the curve a bit with our XTWO ETF to capture potential price appreciation. Figure 7 provides more ideas on using target duration U.S. Treasury ETFs to align with your goals.
FIGURE 7 – Investment Ideas Across the Yield Curve with BondBloxx U.S. Treasury ETFs
Goal ETF Name Ticker
Short-term strategy to generate higher income and manage liquidity
  • BondBloxx 6 Month Target Duration US Treasury ETF
  • BondBloxx 1 Year Target Duration US Treasury ETF
Navigate Fed rate cuts by going slightly longer on the duration curve.
  • BondBloxx 1 Year Target Duration US Treasury ETF
  • BondBloxx 3 Year Target Duration US Treasury ETF
  • BondBloxx 5 Year Target Duration US Treasury ETF
Further extend out on the yield curve to manage large or multiple Fed rate cuts by 2024.
  • BondBloxx 7 Year Target Duration US Treasury ETF
  • BondBloxx 10 Year Target Duration US Treasury ETF
  • BondBloxx 20 Year Target Duration US Treasury ETF
FIGURE 8 – U.S. Treasury Yields Across the Yield Curve
Source: Bloomberg, as of 6/30/2024. The indices represented in this chart include 8 Bloomberg U.S. Treasury Target Duration indices.

Tax Aware Strategies

Tax-Aware Means More Than Buying Municipal Bonds
  • Our view: There is more to tax-aware investing than just municipal bonds, and it is important to look at all fixed income opportunities through a tax lens to maximize after-tax total return performance.
  • Performance: Historically, there have been wide variations in after-tax returns across fixed income categories (Figure 9). During the first half of 2024, short duration corporate and securitized bonds enhanced performance of multi-asset class tax-aware fixed income strategies. Recent widening of municipal bond spreads have improved the current valuations for this asset class.
  • Investment ideas: With its compelling tax-equivalent yield, the actively managed TAXX ETF can be used as a replacement for an investor’s short-duration fixed income portfolios and a more tax-efficient allocation than cash.
FIGURE 9 – Dispersion of After-Tax Returns Across Fixed Income Categories

Source: Bloomberg and IR&M Analytics as of 12/31/2023. Past performance is not indicative of future results. It is not possible to invest in an index.

Emerging Market Sovereign Debt

Find value off the beaten path with short duration emerging markets
  • Our view: We think investors should consider increasing their exposure to emerging markets sovereign bonds, which are attractive due to resilient global economic conditions, moderating inflation, and a weakening U.S. dollar.
  • Performance: Shorter duration emerging markets sovereign bonds (1-10 year maturities) experienced the best performance in fixed income in the first half of 2024, benefiting from spread tightening and its lower sensitivity to interest rate risk (Figure 10).
  • Investment ideas: A shorter duration approach to investing in emerging markets bonds offered by BondBloxx’s XEMD ETF offers the opportunity to invest in a diversified portfolio of emerging markets issuers, benefit from attractive yields, and reduce both interest rate and spread duration risk in the asset class.
FIGURE 10 – Year-to-Date Comparative Performance

Source: J.P. Morgan, ICE Data Services, as of 6/30/2024. The indices represented in this chart include the ICE BofA U.S. High Yield Index, J.P. Morgan 1-10 Year Emerging Markets Sovereign Index, the Bloomberg U.S. Aggregate Index, the J.P. Morgan EMBI Global Diversified Index, the ICE BofA U.S. Corporate Index, and the Bloomberg Global-Aggregate Total Return Index. Past performance is not indicative of future results. It is not possible to invest in an index.

Key takeaways

Let Fixed Income Do More for You

We believe opportunities exist across the fixed income landscape, with yields in most sectors at decade highs and an economic environment that remains resilient. The potential for increased performance dispersion within asset classes means that investors will be well-served looking beyond broad-based benchmarks to invest with precision in the ratings, sectors, and duration categories that benefit from the current economic cycle and Fed policy.

 

 

Glossary and Index Definitions

  • Basis Point is a standardized measure to denote a percentage change in interest rates, spreads, or other financial metrics. 1 basis point is equivalent to one-hundredth of a percentage point (0.01%).
  • Below investment grade bonds: Bonds that are deemed speculative. According to the S&P Global Ratings, these bonds are rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ where ‘BB’ indicates the least degree of speculation and ‘C’ the highest.
  • The Bloomberg Asset Backed Securities 1-3 Year Statistics Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market of maturities between 1-3 years.
  • The Bloomberg Commercial Mortgage-Backed Securities Investment Grade 1-3.5 Year Statistics Index measures the investment grade market of US Agency and US Non-Agency conduit and fusion CMBS deals with a minimum current deal size of $300mn and securities with an average life of 1 to 3.4999 years. The index includes both US Aggregate eligible and non-US Aggregate eligible securities.
  • The Bloomberg Global-Aggregate Total Return Index is a flagship measure of global investment grade debt from twenty-eight local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers.
  • The Bloomberg Municipal 1-3 Year Index measures the performance of USD-denominated tax-exempt bond market with maturities of 1-3 years, including state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds.
  • The Consumer Bloomberg U.S. 10-Year Real Yield Index is an index of 10-year U.S. Treasury inflation-linked securities.
  • The Bloomberg U.S. Aggregate Index is broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed rate pass-throughs), ABS and CMBS (agency and non-agency).
  • The Bloomberg U.S. Corporate 1-3 Year Statistic Index measures the performance of investment grade securities which are selected by a market value process with maturity of 1-3 years. The index includes publicly issued USD-denominated corporate issues that have a remaining maturity of greater than or equal to 1 year and less than 3 years, are rated investment grade (must be Baa3/BBB-or higher using the middle rating of Moody’s Investor Service, Inc., Standard & Poor’s, and Fitch Rating), and have $250 million or more of outstanding face value.
  • The Bloomberg U.S. Treasury 1-3 Year Index measures US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury with 1-2.999 years to maturity. U.S. Treasury bills are excluded by the maturity constraint, but are part of a separate Short Treasury Index. STRIPS are excluded from the index because their inclusion would result in double-counting.
  • The Bloomberg U.S. Treasury Target Duration Indices are a suite of 8 indices designed to target a specific duration using US Treasury securities. The 8 durations targeted are 6 Month, 1 Year, 2 Year, 3 Year, 5 Year, 7 Year, 10 Year and 20 Year.
  • Duration is the risk associated with the sensitivity of a bond’s price to a one percent change in interest rates. The higher the duration, the more sensitive a bond investment will be to changes in interest rates. Duration management is important for optimizing investment returns, managing risk, and ensuring that a portfolio aligns with an investor’s financial objectives and risk tolerance.
  • The Federal Funds Rate is the interest rate that U.S. banks charge one another to borrow or lend money overnight.
  • The ICE BofA Broad Market Index measures the performance of U.S. dollar-denominated, investment grade debt securities, including U.S. Treasury notes and bonds, quasi-government securities, corporate securities, residential and commercial mortgage-backed securities and asset-backed securities.
  • The ICE BofA U.S. Corporate Index tracks the performance of U.S. dollar-denominated investment grade rated corporate debt publicly issued in the U.S. domestic market.
  • The ICE BofA U.S. High Yield Index tracks the performance of U.S. dollar-denominated, below investment grade-rated corporate debt publicly issued in the U.S. domestic market.
  • The ICE BofA U.S. Treasury Index tracks the performance of U.S. dollar denominated sovereign debt publicly issued by the U.S. government in its domestic market.
  • The ICE Diversified U.S. Cash Pay High Yield Rating Category Indices contain all securities in the ICE BofA U.S. Cash Pay High Yield Index, broken down by their rating categories: BB1-BB3, B1-B3, and CCC1-CCC3. Index constituents are capitalization-weighted, based on their current amount outstanding.
  • The ICE Diversified U.S. Cash Pay High Yield Sector Category Indices contain all securities in the ICE BofA U.S. Cash Pay High Yield Index, broken down by industry including: Industrials; Telecom, Media & Technology; Healthcare; Financial & REIT; Energy; Consumer Cyclicals; Consumer Non-Cyclicals. Index constituents are capitalization-weighted, based on their current amount outstanding.
  • Investment grade bonds: Bonds that are deemed to have a lower risk of default. According to the S&P Global Ratings, these bonds are rated ‘AAA’, ‘AA’, ‘A’, and ‘BBB’, where ‘AAA’ indicates the highest capacity for the bond issuer to meet its financial obligation.
  • The J.P. Morgan 1-10 Year Emerging Markets Sovereign Index tracks liquid, U.S. dollar emerging market fixed and floating-rate debt instruments issued by sovereign and quasi sovereign entities. The EMBIGDL 1-10 Index is based on the long-established J.P. Morgan EMBI Global Diversified Index and follows it methodology closely, but only includes securities with at least $1 billion in face amount outstanding and average life below 10 years.
  • The J.P. Morgan EMBI Global Diversified Index tracks total returns for traded external debt instruments in the emerging markets, including U.S. dollar-denominated Brady bonds, loans, and Eurobonds with an outstanding face value of at least $500 million.
  • Market volatility represents variance in returns for a given security of market.
  • Spread Duration is the sensitivity of a bond or portfolio’s market price to a change in its option-adjusted spread (OAS).
  • The yield curve is a line chart that plots interest rates of bonds that have equal credit quality but differing maturity dates.
  • Yield to maturity (YTM) is the overall interest rate earned by an investor who buys a bond at the market price and holds it until maturity.
  • Yield to Worst (YTW) is a measure of the lowest possible yield that can be received on a bond that fully operates within the terms of its contract without defaulting.
1 Bloomberg, as of 12/31/23. Based on the ICE BofA BBB US Corporate Index compared to the ICE BofA US Broad Market Index, the ICE BofA US Treasury Index, the Bloomberg US MBS Index, and the Bloomberg US ABS Index, comparing 1-, 3-, 5- and 10-year annualized returns.

Disclosures

Carefully consider the Funds’ investment objectives, risks, charges, and expenses before investing. This and other information can be found in the Funds’ prospectus or, if available, the summary prospectus, which may be obtained by visiting BondBloxxETF.com. Read the prospectus carefully before investing.

This commentary is provided for informational purposes only and is not an endorsement of any security, sector, or index. The views expressed herein are subject to change and do not constitute investment advice or a recommendation regarding any specific product or security. Past performance is no guarantee of future results. Investing involves risk including possible loss of principal.

Investments in fixed income securities are subject to risks including but not limited to interest rate risk, credit risk and market risk, each of which could have a negative impact on the value of the holding. Credit risk refers to the possibility that the issuer or other obligor of a security will not be able or willing to make payments of interest and principal when due. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices rise. To the extent that interest rates rise, certain underlying obligations may be paid off substantially slower than originally anticipated and the value of those securities may fall sharply.

Certain information contained herein constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events, results or actual performance may differ materially from those reflected or contemplated in such forward-looking statements. Nothing contained herein may be relied upon as a guarantee, promise, assurance or a representation as to the future.

U.S. Treasury obligations may differ from other securities in their interest rates, maturities, times of issuance and other characteristics and may provide relatively lower returns than those of other securities. Similar to other issuers, changes to the financial condition or credit rating of the U.S. government may cause the value of the Fund’s U.S. Treasury obligations to decline. While U.S. Treasury obligations are backed by the “full faith and credit” of the U.S. Government, such securities are nonetheless subject to credit risk.

Securities that are rated below investment-grade (sometimes referred to as “junk bonds,” which may include those bonds rated below “BBB-” by S&P Global Ratings and Fitch or below “Baa3” by Moody’s), or similar securities that are unrated, may be deemed speculative, may involve greater levels of risk than higher-rated securities of similar maturity and may be more likely to default.

Investing in emerging markets involves risks relating to political, economic, or regulatory conditions not associated with investments in U.S. securities and instruments or investments in more developed international markets; Loss due to foreign currency fluctuations, or geographic events that adversely impact issuers of foreign securities.

Certain information contained herein has been obtained from third party sources and such information has not been independently verified by BondBloxx. No representation, warranty, or undertaking, expressed or implied, is given to the accuracy or completeness of such information by BondBloxx or any other person. While such sources are believed to be reliable, BondBloxx does not assume any responsibility for the accuracy or completeness of such information. BondBloxx does not undertake any obligation to update the information contained herein as of any future date.

Distributor: Foreside Fund Services, LLC.

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Carefully consider the Funds’ investment objectives, risks, charges, and expenses before investing. This and other information can be found in the Funds’ prospectus or, if available, the summary prospectus, which may be obtained by visiting this link. Read the prospectus carefully before investing.

There are risks associated with investing, including possible loss of principal. Fixed income investments are subject to interest rate risk; their value will normally decline as interest rates rise. Fixed income investments are also subject to credit risk, the risk that the issuer of a bond will fail to pay interest and principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of that bond to decline. Investing in mortgage- and asset-backed securities involves interest rate, credit, valuation, extension and liquidity risks and the risk that payments on the underlying assets are delayed, prepaid, subordinated or defaulted on.

Distributor: Foreside Fund Services, LLC.

Precise refers to exposures that are targeted, accurate reflections the sector as defined by ICE Data Indices, LLC.

Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price.

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Copyright ©2024 BondBloxx Investment Management Corporation

BondBloxx Investment Management Corporation is a registered investment adviser. Nothing on this website shall constitute or serve as an offer to sell products or services in any country or jurisdiction by BondBloxx Investment Management. For informational purposes only. All information is given in good faith and without warranty and should not be considered investment advice or an offer of any security for sale.

Products

Yield to Worst: The bond yield is computed by using the lower of either the yield to maturity or the yield to call on every possible call date. Yield to worst is shown for all securities with the exception of agency mortgage-backed securities (MBS), commercial mortgage-backed securities (CMBS), and asset-backed securities (ABS). Agency MBS are priced based on zero volatility yield. CMBS and ABS are priced based on effective maturity.

Option Adjusted Duration is a measure of the potential responsiveness of a bond or portfolio price to parallel shifts in interest rates.

After Tax Post-Liq.(%): After-Tax Post-Liquidation Returns measure the performance of the fund after accounting for both taxes on distributions and the taxes incurred from selling the fund shares. This metric provides a comprehensive view of the investment’s tax impact, including the realization of capital gains or losses upon the sale. The highest marginal Federal tax rate is assumed.

After Tax Pre-Liq.(%): After-Tax Pre-Liquidation Returns refer to the performance of the fund after considering the impact of taxes on distributions, but before any action to sell the fund shares is taken. This measure provides investors with insight into how taxes affect their returns without factoring in the potential taxes from selling the investment, thus focusing solely on the tax implications of the fund’s income and capital gains distributions. The highest marginal Federal tax rate is assumed.

After-tax yield: The after-tax yield is the return that investors can expect to receive after accounting for taxes owed on the interest income generated by the bond. This yield is particularly important when comparing the returns on municipal bonds, which are often exempt from federal income tax (and sometimes state and local taxes if the bond is issued within the investor’s state of residence), with those on taxable bonds, like corporate or government bonds.

Tax Equivalent Yield: The tax-equivalent yield (TEY) is the yield that a taxable bond would need to equal the yield on a comparable tax-exempt municipal bond, taking into account the impact of taxes. The calculation is a tool that investors can use to fairly compare the yield between a tax-free investment and a taxable alternative. TEY assumes the highest marginal Federal tax rate, is measured at the individual bond level, and aggregated to the portfolio level.

Tax Equivalent Yield = Tax Free Municipal Bond Yield / (1-Tax Rate)

Effective duration: Effective duration is a way to measure interest-rate sensitivity for bonds that have embedded options, such as callable or puttable features. Effective duration captures the potential variations in cash flows due to these options, and can be measured using modified duration for option-free bonds. The calculation is measured at the individual bond level and then aggregated to the portfolio level.

The 30-Day SEC Yield represents net investment income earned by the fund over the 30-Day period, expressed as an annual percent age rate based on the fund’s share price at the end of the 30-Day period.

Option Adjusted Duration is a measure of the potential responsiveness of a bond or portfolio price to parallel shifts in interest rates.

The values shown are based off of a price provided by the Fund’s third-party index provider, using the bid price for each security (the “index price”). Because the Fund values its securities at the midpoint between the bid and ask prices for most securities, the index price is not necessarily the price at which the Fund values the portfolio holding for the purposes of determining its net asset value (the “valuation price”). The values shown may have been different if the valuation price were to have been used to calculate such values. The index price is as of the most recent date for which a price is available, and may not necessarily be as of the date shown above.

Distribution Schedule
Index Overview
Prospectus 
Statement of Additional Information

Market Price: Inception date for Market Price Calculation is as of 9/13/22. Market Returns are based on the midpoint of the bid/ask spread at 4 p.m. ET and do not represent the returns an investor would receive if shares were traded at other times.

NAV: Inception date for NAV calculation is as of 9/13/22.

Number of Countries: The number of unique countries that have issued bonds represented in the fund.

Spread to Worst: Spread to worst is a bond’s yield to worst minus the yield at a point on the fair value government yield curve that corresponds to the bond’s expected redemption date.

Distribution Schedule
Index Overview
Prospectus
SAI

NAV: Inception date for NAV calculation is as of 2/15/22.

Distribution Schedule 
Index Overview
Prospectus
SAI

Premium Discount disclosure to be added here.

Index disclosure to be added here.

Market Price: Inception date for Market Price Calculation is as of 2/17/22. Market Returns are based on the midpoint of the bid/ask spread at 4 p.m. ET and do not represent the returns an investor would receive if shares were traded at other times.

Total return disclosure to be added here.

The Growth of $10,000 chart reflects a hypothetical $10,000 investment and assumes reinvestment of dividends and capital gains. Fund expenses, including management fees and other expenses were deducted.

Index Market Cap represents aggregate market value of bonds in the underlying index.

The yield an investor would have received if they had held the fund over the last twelve months assuming the most recent NAV. The 12-Month yield is calculated by assuming any income distributions over the past twelve months and dividing by the sum of the most recent NAV and any capital gain distributions made per the past twelve months.

30 Day SEC Yield: A standard calculation of yield introduced by the SEC in order to provide fairer comparison among funds. It is based on the most recent 30-day period. This yield figure reflects the interest earned during the period after deducting the Fund’s expenses for the period. It does not reflect the yield an investor would have received if they had held the Fund over the last twelve months assuming the most recent NAV. Distributions may vary from time to time.

Spread Duration is a measure of the potential responsiveness of a bond or portfolio price to changes in credit spread.

The values shown are based off of a price provided by the Fund’s third-party index provider, using the bid price for each security (the “index price”). Because the Fund values its securities at the midpoint between the bid and ask prices for most securities, the index price is not necessarily the price at which the Fund values the portfolio holding for the purposes of determining its net asset value (the “valuation price”). The values shown may have been different if the valuation price were to have been used to calculate such values. The index price is as of the most recent date for which a price is available, and may not necessarily be as of the date shown above.

Option Adjusted Spread (OAS): For a bond, the option-adjusted spread is the measurement of the spread between the bond and the underlying government yield curve. For an Index, the average of its constituent security government option-adjusted spreads, weighted by full market value. 

The values shown are based off of a price provided by the Fund’s third-party index provider, using the bid price for each security (the “index price”). Because the Fund values its securities at the midpoint between the bid and ask prices for most securities, the index price is not necessarily the price at which the Fund values the portfolio holding for the purposes of determining its net asset value (the “valuation price”). The values shown may have been different if the valuation price were to have been used to calculate such values. The index price is as of the most recent date for which a price is available, and may not necessarily be as of the date shown above.

Yield to Worst: The bond yield is computed by using the lower of either the yield to maturity or the yield to call on every possible call date.

The values shown are based off of a price provided by the Fund’s third-party index provider, using the bid price for each security (the “index price”). Because the Fund values its securities at the midpoint between the bid and ask prices for most securities, the index price is not necessarily the price at which the Fund values the portfolio holding for the purposes of determining its net asset value (the “valuation price”). The values shown may have been different if the valuation price were to have been used to calculate such values. The index price is as of the most recent date for which a price is available, and may not necessarily be as of the date shown above.

Yield to Maturity: The discount rate that equates the present value of a bond’s cash flows with its market price (including accrued interest). The Fund Average Yield to Maturity is the weighted average of the fund’s individual bond holding yields based on Net Asset Value (‘NAV’). The measure does not include fees and expenses. For callable bonds, this yield is the yield-to-worst.

The values shown are based off of a price provided by the Fund’s third-party index provider, using the bid price for each security (the “index price”). Because the Fund values its securities at the midpoint between the bid and ask prices for most securities, the index price is not necessarily the price at which the Fund values the portfolio holding for the purposes of determining its net asset value (the “valuation price”). The values shown may have been different if the valuation price were to have been used to calculate such values. The index price is as of the most recent date for which a price is available, and may not necessarily be as of the date shown above.

Average Maturity: The average length of time to the repayment of principal for the securities in the fund. This metric considers the likelihood that bonds will be called or prepaid before the scheduled maturity date.

Average Coupon: The average coupon rate of the underlying bonds in the fund, weighted by each bond’s face value.

Number of Issuers: The number of unique companies that have issued bonds represented in the fund (distinct from the number of issues from a company).

Expense Ratio: As stated in the Fund’s current prospectus.

Acquired Fund Fees and Expenses (“AFFE”) reflect the Fund’s pro rata share of the indirect fees and expenses incurred by investing in one or more acquired funds, such as mutual funds, business development companies, or other pooled investment vehicles. AFFE are reflected in the prices of the acquired funds and thus included in the total returns of the Fund.

NAIC Rating: Property of the National Association of Insurance Commissioners (NAIC) and are redistributed here under License. An NAIC Designation is a proprietary symbol used by the NAIC Securities Valuation Office (SVO) to denote a category or band of credit risk (i.e., the likelihood of repayment in accordance with a written contract) for an issuer or for a security. NAIC Designations may be notched up or down to reflect the position of a specific liability in the issuer’s capital structure and/or the existence of other non-payment risk in the specific security. Under NAIC reporting rules, shares of an ETF are presumed to be reportable as common stock. The SVO may classify an ETF as a bond or preferred stock and assign it an NAIC Designation if it meets defined criteria. For a discussion of these criteria please call the SVO or refer to the Purposes and Procedures Manual of the NAIC Investment Analysis Office. The assignment of an NAIC Designation is not a recommendation to purchase the ETF and is not intended to convey approval or endorsement of the ETF Sponsor or the ETF by the NAIC.

The Securities Valuation Office (“SVO”) of the National Association of Insurance Commissioners (“NAIC”) assesses the credit quality of fixed income securities owned by state-regulated insurance companies and assigns appropriate NAIC designations, ranging from the highest quality of “1” to the lowest of “6.”  For more information visit https://content.naic.org/