Multi-asset ETFs, such as the Invesco Zacks Multi-Asset Income Index ETF (NYSEArca: CVY), can be useful avenues for investors looking to reduce correlation and boost income streams – two relevant strategies in today’s raucous market climate.
CVY tracks the Zacks Multi-Asset Income Index, which “uses quantitative analysis to select stocks from the Index universe to obtain a representative sample of stocks that resemble the Index in terms of key risk factors, performance attributes, and other characteristics,” according to Invesco.
Securities currently held by CVY include common stocks, master limited partnerships (MLPs), real estate investment trusts (REITs), closed-end funds and preferred stocks. In other words, CVY is ideally suited for today’s low-yield environment.
“One of the most significant characteristics of the post-financial crisis world has been the global persistence of low, or even negative, interest rates,” said S&P Dow Jones Indices in a recent note. “The entire U.S. Treasury curve yielded below 1% for the first time in history on March 9, 2020, in the wake of the COVID-19 pandemic, before the long end reverted recently on fiscal stimulus reports. Investors seeking exposure to income-generating strategies may first consider extending into high-yield corporates or leveraged loans, but viable alternatives exist in other asset classes.”
Income Coverage With CVY
CVY sports a tempting 30-day SEC yield of 8.65%, according to Invesco data. That high yield is driven in part by exposure to energy assets, including master limited partnerships, closed-end funds, and REITs, among other assets.
“Real assets (real estate, agriculture, commodities, and infrastructure) can provide income and act as a type of hedge to other financial instruments, as the underlying returns are often driven by practical usage rather than daily market movements,” according to S&P Dow Jones. “REITs and MLPs generally offer the easiest exposure to a wide array of real estate properties and locales. Mortgage-backed securities potentially offer more customized exposures, although with increased refinancing and convexity risk.”
CVY’s real estate exposure is notable at a time when investors are prizing the defensive sector and as interest rates decline. The fund’s MLP exposure is useful not only because of the high yields associated with that asset class but due to low correlations to traditional energy equities.
CVY is also a good idea for investors looking to access the value factor as roughly 81% of the fund’s 149 holdings carry the value designation.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.