Low global interest rates are feeding into more individuals and companies taking on debt amid the coronavirus pandemic, but it’s also putting the hurt on fixed income investors. With investors starving for yield, one fund to look at is the FlexShares Ready Access Variable Income Fund (RAVI).
RAVI seeks maximum current income consistent with the preservation of capital and liquidity. The fund seeks to achieve its investment objective by investing at least 80% of its total assets in a non-diversified portfolio of fixed-income instruments, including bonds, debt securities and other similar instruments issued by U.S. and non-U.S. public and private sector entities.
The dollar-weighted average portfolio maturity of the fund is normally not expected to exceed two years. It may invest up to 20% of its total assets in fixed-income securities and instruments of issuers in emerging markets.
“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,” a fund case study by FlexShares noted. “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.”
In addition to seeking yield, RAVI minimizes volatility in the bond markets with lesser duration. Investors witnessed firsthand how bond markets can move amid the coronavirus pandemic, which saw a scramble to safe haven assets like bonds.
“In our view, the variety of fixed-income assets available to the NTI investment team provides flexibility to manage the FlexShares Ready Access Variable Income Fund’s (RAVI) duration and liquidity according to their outlook for interest rates and market conditions,” FlexShares added. “Targeting durations above the three-month cap on money market funds, but below the 1.5-year minimum duration typically offered by short-term bond funds, may provide higher returns than money market funds while limiting the potential for principal volatility.”
RAVI also gives investors a higher yielding option versus a money market savings account. Additionally, it proves to be more liquid than holding individual bonds themselves.
“We believe the FlexShares Ready Access Variable Income Fund (RAVI) 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,” FlexShares added. “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.”
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