As traditional fixed income assets suffer the brunt of a more hawkish Federal Reserve policy outlook, advisors should consider alternative ideas to generate yield and better diversify their risk exposure.
In the upcoming webcast, Diversify Your Income Sources: The Best Kept Secret in Portfolio Construction, Sandra Testani, vice president of ETF product and strategy at American Century Investments and Hitesh Patel, vice president and portfolio manager at American Century Investments, will discuss the benefits of preferred securities and convertible bonds to bolster after-tax income.
For example, investors can look to the actively managed American Century Quality Preferreds ETF (QPFF). The American Century Quality Preferreds ETF has a quality focus that overweights issuers believed to offer more sustainable dividends throughout the market cycle, employs sector-specific assessments to address large benchmark banking exposure, and monitors credit, liquidity, rate, and structural risks to mitigate sharp price declines.
QPFF tries to identify high-quality issuers by eliminating issuers with the highest likelihood of suspending dividends in challenging market environments and focusing on earnings quality and market capitalization. The fund managers also employ sector-specific screens to further refine the investment universe to account for idiosyncrasies among banking and non-banking sectors and optimize remaining issuers based on valuation and yield. The strategy seeks the securities with the best structural features, accounting for market inefficiencies that may impact relative valuation among issues. Lastly, the ETF ensures alignment with aggregate portfolio risk/return objectives, liquidity, and portfolio constraints.
For convertible bond exposure, the American Century Quality Convertible Securities ETF (QCON) is an actively managed convertible bond portfolio that focuses on quality, industry diversification, and balancing beta exposure to optimize risk/return potential for investors seeking a diversifying alternative strategy.
The American Century Quality Convertible Securities ETF overweights issuers with a stronger earnings profile, stronger balance sheets, and higher-than-average credit ratings. It also targets a more balanced beta range for the portfolio to mitigate sharp price declines and aims to diversify across industries and sectors to address benchmark concentration.
QCON’s bond-like convertibles segment eliminates issuers with the highest default risk and optimizes issuers based on valuation and yield. The ETF’s equity-like convertibles portion eliminates issuers with the lowest profitability and lowest realized growth, instead optimizing issuers based on profitability and growth. The portfolio then seeks the securities with the best structural features, accounting for market inefficiencies that may impact relative valuation among issues. Lastly, it ensures alignment with aggregate portfolio risk/return objectives, liquidity, and portfolio constraints.
Financial advisors who are interested in learning more about income strategies can register for the Tuesday, June 14 webcast here.