As investors prepare portfolios for the new year, four fixed income ETFs are worth consideration for 2025.
1. Invesco Senior Loan ETF (BKLN)
As investors look for fixed income ETFs well-positioned for 2025, bank loans should not be overlooked. Senior bank loans are debt securities issued to a company by a bank or similar financial institution and then are repackaged and sold to investors. Senior bank loans have variable interest rates and adjust periodically with the market.
Bank loans have the potential to offer attractive income while being more conservative than high yield bonds, adding less risk to portfolios.
BKLN is based on the Morningstar LSTA US Leveraged Loan 100 Index. The fund’s underlying index tracks the market-weighted performance of the largest institutional leveraged loans based on market weightings, spreads, and interest payments. Compared to its bank loan ETF category peers, BKLN takes a lower-duration, higher-quality approach.
2. Invesco AAA CLO Floating Rate Note ETF (ICLO)
CLOs are a compelling investment opportunity in the current environment. They may be able to yield as much as 100 basis points above Treasurys while maintaining a AAA credit risk
Invesco’s ICLO actively invests in floating rate notes issued by CLOs rated AAA or of equivalent quality.
3. Invesco Total Return Bond ETF (GTO)
GTO is an actively managed intermediate-term bond ETF. The fund is an ideal fit for investors looking for an active total return portfolio. GTO allows investors to farm out decisions on when to add risk (or not), as well as how to play with duration, to Invesco’s experienced team of fixed income portfolio managers.
4. Invesco Variable Rate Preferred ETF (VRP)
Preferreds are another area that many investors may be underexposed to. Preferred securities are often overlooked, but they may be able to offer attractive tax-advantaged income potential, good credit quality, and diversification benefits.
Preferred stock in a company typically has a higher claim on dividends and assets than common equity shares (but lower than bonds). Similar to bonds, preferred securities offer a specified yield and par value, which limits potential losses.
Preferreds have historically had a volatility profile lower than that of stocks, while being just slightly above that of credit-sensitive high yield bonds.
Invesco’s VRP provides relatively high yields distributed as qualified dividend income, typically taxed at a lower rate than ordinary income. The fund has lower interest rate sensitivity, making it an interesting option for the current environment.
For more news, information, and analysis, visit the Innovative ETFs Channel.
