This ETF May Provide Income During Volatile Times | ETF Trends

The war in Ukraine has exacerbated uncertainty over markets, rates, inflation, and commodity supplies. Fahad Kamal, chief investment officer at Kleinwort Hambros, told the Wall Street Journal: “Markets are trying to price something that is basically impossible to price, as part of what’s going on in the world depends on Putin’s thinking, which nobody knows,” before adding: “The longer the conflict lasts, the higher the upside to inflation, the lower the downside to growth. It’s massively, radically uncertain.”

In addition to the uncertainty and volatility caused by the war, analysts are predicting that the Federal Reserve may raise rates faster than previously projected to curb inflation. Per the Journal, economists from Citigroup and Bank of America have suggested that the Fed could lift rates by half a percentage point at a time, in contrast to last week’s quarter-point rise.

In response to expected higher interest rates, stocks dipped on Friday, with the S&P 500 falling 0.3% in trading, while the Dow Jones Industrial Average went down 0.1%, and the Nasdaq Composite dropped 1.1%.

Investors looking for risk-adjusted income may want to consider the American Century Multisector Income ETF (MUSI), an actively managed ETF that seeks diversified exposures across investment-grade corporate, high-yield, securitized, and emerging market bonds. MUSI invests in both investment-grade corporate bonds and high-yield “junk bonds.” The fund can also invest in preferred stock, convertible securities, bank loans, and other equivalents within equities.

By investing in securitized credit instruments, the fund is capable of liquidity in times of market movement. Investing in high-yield bonds typically means shorter durations that are less affected by rising interest rates, as well as the ability to capture the call price of a company refinancing to lock in lower rates before rates rise further. This penalty is rolled into the returns for high-yield bonds and equates to even greater returns for investors.

MUSI’s portfolio managers rotate sector allocation depending on the global macroeconomic outlook combined with the relative valuation between sectors. This sector allocation considers inflation, economic activity, and monetary policy utilizing fundamental research and quantitative modeling.

The investment blend as of December 31 was 49.42% into credit, 24.99% securitized, 14.68% emerging markets, 5.53% equities, 4.83% government, and the rest in other bonds.

MUSI has an expense ratio of 0.35% and an option-adjusted duration of 3.24 years as of February 28, 2022.

For more news, information, and strategy, visit the Core Strategies Channel.