Market turbulence stemming from the novel coronavirus outbreak is creeping into the fixed income space, but investors can find steadiness with ETFs such as the FlexShares Ready Access Variable Income Fund (RAVI).
The fund primarily invests in investment-grade debt securities with a heavy tilt toward U.S. corporate bonds. According to the fund prospectus, the ETF may also invest, without limitation, in fixed-income securities and instruments of foreign issuers in developed and emerging markets, including debt securities of foreign governments, and may invest more than 25% of its total assets in securities and instruments of issuers in a single developed market country. RAVI can hold up to 20% of its total assets in fixed-income securities and instruments of issuers in emerging markets.
Institutional and individual investors, financial advisors and corporate treasuries, among others, still expect to find ways to maintain their principle while generating some extra yield with their cash positions. Some have ventured further away from the ultra-conservative plays and looked to so-called short-term bond funds with an effective duration of about one-and-a-half years.
The $323.66 million RAVI yields 2.47%, which is decent by today’s standards.
Seeking More Yield From RAVI
RAVI maybe something for investors whom are looking for a little more yield than what’s provided by money market funds, but don’t want to move too far out of the short-duration end of the yield curve. RAVI’s duration is just 0.68 years, according to issuer data. Due to the fund’s ultra-short-term debt exposure, investors may utilize the ETF as a cash or money market alternative.
The ongoing low-yield environment and improving economic sentiment has helped push investors toward corporate debt. However, potential investors should be aware that corporate bonds have historically exhibited greater volatility than U.S. Treasuries due to the increased volatility in corporate cash flows and credit risks, along with greater liquidity risks.
RAVI is actively managed and tries to generate maximum current income consistent with the preservation of capital and liquidity through short-term, investment-grade debt securities and cash equivalents.
RAVI charges just 0.25% per year, or $25 on a $10,000 investment.
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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.