The “will they, won’t they” between the Trump administration and the Iranian government has gone on for weeks, and while headlines avoid it, the energy disruption remains a huge story. Not only has infrastructure been devastated in key energy production zones, but other critical commodities like fertilizer have become much more expensive as well. It’s important for investors to respond, especially those at or near retirement. The right type of income ETFs can be that response.
Key Takeaways:
- Income ETFs have exploded in popularity since the arrival of the so-called ETF rule in 2019.
- Active management can help bring income strategies to life, and are especially useful for volatile periods.
- Geopolitics will potentially impact markets for the rest of the year, making portfolio durability a critical priority.
With equities so tumultuous, refreshing bond allocations may prove to be the savvier move. Especially with an active ETF approach, income ETFs can navigate issuers and find those offering a combination of income and durability. While passive bond funds may struggle to maintain target weightings when bonds are called early, active funds can pivot quickly to stay on strategy.
American Century Investments offers some intriguing income ETFs that may fit the bill. Specifically — SDSI and MUSI — two funds that make income a priority. SDSI, the American Century Short Duration Strategic Income ETF, charges a 32 basis point fee, while MUSI, the American Century Multisector Income ETF, charges a 38 basis point fee.
SDSI actively invests in short duration fixed income securities. The income ETF actively invests in securities issued or guaranteed by the U.S. Treasury or certain government agencies as well as bank loans, asset-backed securities, and other debt offerings. What’s more, SDSI can also use derivatives, swaps, currency forwards, and various other investment tools to achieve its income goals.
Together, these features have helped the strategy provide a 5.86% yield to maturity, according to American Century Investments data as of March 31st. The strategy has also offered a 4.9% 12-month distribution rate.
MUSI, meanwhile, leans on a multifactor approach when considering its potential bond investments. The strategy actively invests in a global bond portfolio without a specific target duration. The active income ETF seeks both current income and total return, using a sector rotation approach that combines fundamental and quantitative inputs. Together, these components have helped the ETF provide a 6.48% yield to maturity and a 5.75% 12-month distribution rate.
Looking ahead, SDSI and MUSI could help refresh investors’ bond portfolios for an uncertain year ahead. Especially for retirees on fixed incomes, adding income via adaptable, in-depth active income ETFs is a strategy worth considering.
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