Invesco has six non-core fixed income ETFs that advisors can add to portfolios to create alpha opportunities and increase portfolio diversification.
Exposure to non-core fixed income is important as the largest U.S. bond index only provides exposure to approximately 40% of the U.S. fixed income universe and doesn’t include areas with some of the highest alpha potential, according to Invesco.
“Advisors have looked to augment their core portfolio with other investment styles to add diversification benefits and to generate strong risk-adjusted income,” Todd Rosenbluth, head of research at VettaFi, said.
Advisors can use the following non-core fixed income ETFs to tactically adjust exposures efficiently.
BKLN provides investors with access to high current income potential with protection against rising rates. The fund’s 30-day SEC yield was 6.84% as of December 31.
PHB seeks high income with less sensitivity to interest rate increases; however, the fund achieves its objective with a higher credit risk. PHB’s 30-day SEC yield was 6.39% as of December 31.
BAB is the only taxable municipal ETF available in the marketplace, according to Invesco. As of December 31, the fund’s 30-day SEC yield was 4.96%.
BAB provides diversification from other areas of the Bloomberg US Aggregate Bond Index.
PGX seeks high quality, tax-advantaged income with potentially lower risk than other preferred equity approaches, offering investors the opportunity to diversify income stream with a tax-efficient yield (6.41% 30-day SEC yield as of December 31).
VRP provides relatively high yields distributed as qualified dividend income, typically taxed at a lower rate than ordinary income. In addition to offering diversification benefits, the fund has lower interest rate sensitivity.
The fund’s 30-day SEX yield was 5.80% as of December 31.
Due to its emerging markets exposure, PCY has the highest 30-day SEC yield, at 7.89% as of December 31. To compensate for higher risks, emerging markets debt has historically offered higher yields compared to developed markets, according to World Bank. PCY limits country-specific risk and avoids currency risk.
PHB, PGX, VRP, and PCY charge 50 basis points, while BAB charges 28 basis points and BKLC charges 65 basis points.
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