As Yields Push Higher Again, Get Active Income Exposure

Interest rates are pushing higher again after bonds were rallying from a rough first half of 2022, but Federal Reserve chairman Jerome Powell’s latest comments on interest rate policy moving forward stifled that comeback. As yields push higher again, consider the American Century Multisector Income ETF (MUSI).

Powell warned that more gain could be ahead as the Fed looks towards more hawkishness to tamp down inflation. The major stock market indexes reacted negatively with the S&P 500 falling over 3% immediately after.

“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” Powell said in prepared remarks at the annual Jackson Hole, Wyoming symposium. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

“We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%,” Powell said.

Get Yield and Active Management Exposure

MUSI comes with a 30-day SEC yield of 4.80% as of July 29. While the fund invests in investment-grade corporate debt, MUSI will step deeper into riskier credit to extract more yield.

In terms of duration, the fund focuses on more short-term to intermediate-term debt. The weighted average life to maturity, as of July 31, is about 6 years.

Per the overall fund’s description, MUSI (via active management) seeks to deliver high levels of current income and attractive risk-adjusted returns over a full market cycle. Features of MUSI per its product website:

  • Invests in a diverse portfolio consisting of investment-grade corporate, high yield (up to 65%), securitized, and emerging markets debt securities.
  • Sector allocation decisions managed tactically, driven by global macroeconomic outlook and assessment of relative valuation among sectors.
  • Sector specialist teams select individual bonds based on their own fundamental, bottom-up analysis.

As the fund description notes, MUSI is actively managed, allowing ETF investors the option to get exposure to more flexibility and risk management strategies. With the assistance of a professional team of portfolio managers, MUSI gives investors dynamic exposure to the fixed income market with respect to its selection of holdings.

With the ability to get in and out of positions when the market environment deems necessary, the fund has more flexibility in a current market environment where rate hikes are prevalent. Additionally, this gives the fund additional risk management by allowing the fund’s managers to pivot and adjust the portfolio’s holdings whenever necessary.

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