Everyone Needs a Big Brother

We’ve all been there at our lowest point thinking how we’ll come back from the challenges that have pushed us so low. How could we ever get back up from the pain of defeat? Then, just as it seems like there is no hope left, our Big Brother is there for us. Lifting us to new highs through encouragement and support while stabilizing our foundation. Wait…you know I’m talking about the Fed, right? As in the Federal Reserve. Ah yes, our Big Brother is here to restore balance to the financial system through targeted purchases of corporate ETFs. Come one, come all! Long end, short end, investment grade and high yield! All have a place in the arms of our Big Brother.

Source: Bloomberg, Financial Sense Wealth Management

Shown above are the four largest ETF holdings of the Federal Reserve. As the coronavirus brought unexpected peril to various industries, the Fed decided to stabilize things with its open market operations by deploying close to $6.8 billion towards US based corporate bond ETFs. They are even willing to venture into the sub investment grade category of junk credit as you can see with their near $400 million position in the JNK bond ETF.

The weighted average duration of these holdings for the Fed turns out to be 5.78 years with the longest duration ETF being the ever popular LQD (iShares iBoxx $ Investment Grade Corporate Bond ETF). As far as the ratings breakdown of these ETFs, look no further than above for your enlightenment. The Fed is staying in the middle of the pack between the A and BBB spaces. The drop off from investment grade into junk is clearly notable.

Luckily, our Big Brother has some good company when it comes to friends. The likes of Charles Schwab, Bank of America, Morgan Stanley, Goldman Sachs and others all stand in similar positioning to the Fed when it comes to the weight they carry in these investment vehicles. Let’s just hope they play nicely.

Advisory services offered through Financial Sense® Advisors, Inc., a registered investment adviser. Securities offered through Financial Sense® Securities, Inc., Member FINRA/SIPC. DBA Financial Sense® Wealth Management.

Copyright © 2020 Ryan Preiss

About the Author

Research Analyst/Senior Trader
Financial Sense® Wealth Management
ryan [dot] preiss [at] financialsense [dot] com ()