As Potential Recession Looms, Find Income With This Short-Term Debt ETF

The increasing probability of a looming recession has encouraged investors’ search for liquid funds capable of generating income. 

Investors looking for income-generating investments in the current economic climate may consider the FlexShares Ready Access Variable Income Fund (RAVI), a short-term debt fund that is an ideal fit for preserving capital while wringing out a bit more income than offered from Treasuries.

RAVI, which has been one of FlexShares’ three most popular ETFs by inflows for the past two months, is designed to provide investment liquidity, minimum principle volatility, and the potential for higher returns.

The fund offers investors a vehicle with stronger return potential than money market funds, while retaining the liquidity necessary to hold funds for use in near-term investment decisions. Taking advantage of Northern Trust’s expertise in the fixed income markets, the fund may fill a gap between money market funds and short-term bond funds.

“Investors need liquid assets for many reasons, such as providing an emergency cash reserve or offering a place to temporarily hold funds earmarked for short-term investment needs,” FlexShares wrote in a Fund Focus paper. “Prior to the financial crisis of 2008, money market funds offered a stable source of liquidity that still generated acceptable returns. Since then, however, new restrictions have greatly reduced the yields on money market funds. As a result, investors interested in liquid assets that provide higher relative returns have had to look for alternatives in ultra-short-term fixed-income investment vehicles.”

Northern Trust Investments, the investment advisor for FlexShares Funds, actively manages the fund, capitalizing on its deep expertise in corporate bonds and other fixed income sectors. Because the fund is not constrained by the rules governing conventional money market funds, it invests in a wide range of securities with durations between three months and 1.5 years. Those securities include agency debt, mortgage-backed/asset-backed securities, corporate debt, government debt, and cash, according to the firm.

NTI manages the overall portfolio to maintain an average duration of between 0.25 years and one year, based on its outlook for interest rates. All the fund’s investments must be investment-grade at the time of purchase, and the portfolio also includes constraints to avoid concentrations in asset-backed securities, single issuers, or debt based in emerging markets, according to the firm.

The fund charges a 25 basis point expense ratio. 

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