Given the challenging market environment for fixed income investors, income generation remains top of mind. As interest rates rise, advisors and investors may be better served by turning to these three yield-generating strategies to meet their income needs.
In the upcoming webcast, Three Ideas For Investors Who Are Looking For Income Today, Sean O’Hara, president of Pacer ETFs, will discuss the obstacles that investors face in today’s fixed income markets and look toward these strategies that could help financial advisors augment their clients’ income portfolios.
For example, the actively managed Pacer Pacific Asset Enhanced Floating Rate Note ETF (NYSEArca: FLRT) seeks to provide a high level of current income through selective investments within a portfolio comprised primarily of income-producing floating rate loans and floating rate debt securities of non-investment grade companies, which are commonly referred to as bank loans. It can serve as both an income driver and a hedge against rising interest rates.
Investors who are in search of income in this lower-for-longer yield environment can also turn to a unique, dividend-focused ETF: the Pacer Metaurus US Large Cap Dividend Multiplier 400 ETF (QDPL), which seeks to provide cash distributions equal to 400% of the S&P 500 dividend yield in exchange for modestly lower exposure to the price return performance of the S&P 500.
QDPL separates the S&P 500 into its two return components: dividend cash flow and price appreciation/depreciation. The fund then reduces equity exposure to the S&P 500 Index at approximately 88% and uses the remaining percentage to purchase dividend futures for 4x greater participation in dividends. Lastly, the strategy recombines the components into new ratios to produce an S&P 500 exposure with 4x dividend yield and approximately 88% S&P 500 Index exposure.
Furthermore, investors can consider the potentially attractive income opportunities in the midstream energy infrastructure segment. Specifically, the Pacer American Energy Independence ETF (USAI), which comprises both corporations and master limited partnerships or MLPs, and offers exposure to the growth potential of infrastructure development supporting domestic energy supplies.
Instead of focusing on MLPs exclusively, USAI tilts towards the largest energy infrastructure companies. The ETF follows the American Energy Independence Index, which includes U.S.- and Canada-based energy infrastructure companies, along with high-yielding master limited partnerships and general partners. Since it does not focus exclusively on MLPs, USAI can sidestep some of the tax inefficiencies we may see in the MLP market.
Financial advisors who are interested in learning more about income strategies can register for the Thursday, May 12 webcast here.