Passing grades for bond ETFs

September 21, 2015 01:00 PM

The Trendrating Momentum Model is designed to capture medium- to long-term trends lasting a few months to a few years. The model filters out noise using 357 indicators based on price, arriving at eight that work together. The rating scale (A,B,C and D) is based on the strength of the indicators where “A” signifies a strong bull trend and “D” an established bear trend.  A security with six positive indicators receives a “B” rating, indicating the beginning of a bull trend. When all eight indicators are positive, the security is rated “A,” signifying an established bull trend. 

Developed markets have enjoyed a long bull run in fixed income. With the unconventional monetary policies that fueled this rise seemingly coming to an end before the end of 2015, what are bond exchange traded funds (ETFs) saying about fixed income markets?

“Read the top line,” is a momentum health check for fixed income for U.S.-based ETFs covered by Trendrating.
As we can see from the diagram, nearly 88% of this universe is trending negatively with 54.64% (“D” rated ETFs) in an established negative trend. It is also worthy of note that 76% of the ETFs in this universe obtained their negative ratings within the last three months.

While the majority of U.S. bond ETFs currently are exhibiting weak positive momentum, Trendrating has identified four positively trending funds with good upside potential (see “Outlier ETFs”). Although these ETFs have not performed particularly well since receiving a “B” rating, our model continues to maintain a positive outlook on their medium- to long-term performance in the coming months.

About the Author

Rocco Pellegrinelli, Trendrating founder & CEO, began his career as a portfolio manager and investment banker and has since been a proven fintech entrepreneur for the past 20 years. He created Brainpower in 1996 and established it as one of the top portfolio management systems globally. After going public on the Frankfurt Stock Exchange in 2000, Brainpower was acquired by Bloomberg in 2006. @trendrating