Playing the Short Game With Active Income | ETF Trends

Now more than ever, it pays to be strategic with fixed income assets, even those with low and ultra-short durations. The Principal Ultra-Short Active Income ETF (NYSEArca: USI) helps investors with the objective.

USI provides this benefit while at the same time, has the active management component. USI will invest in debt issues that seek to maintain both an average effective maturity of three years or less and an average portfolio duration of one year or less.

USI may hold a mix of fixed and floating rate securities in the U.S. and foreign debt from the financial services sector, such as banking, insurance, and commercial finance.

When it specifically comes to single-factor investing, it’s important for investors to utilize a strategy that will optimize the decision-making process.

Utilizing USI

The bond market is rife with opportunities, especially in the ETF world where fixed-income funds are having another record year, but when volatility strikes, this is where active management can play a crucial role.

In today’s low-yield environment, active management as almost a necessity. With the flexibility to move in and out of debt issues quickly to adjust for changes in the market, active management has a leg up on passive.

As investors consider the potential headwinds and volatility going into 2020, many are looking into defensive areas to safeguard their wealth, such as bond-related ETF strategies.

USI’s portfolio follows an ultra-short duration, risk-managed approach that helps fixed-income investors to hedge against rising rates while enhancing or diversifying a cash management strategy. When you look at this strategy, it’s not cash, but it must be close from liquidity management and duration perspective.

Investors who are seeking money fund substitutes may look to actively managed, ultra-short duration bond ETFs that are freer to adapt holdings in a shifting market environment.

USI currently has 51 holdings. The Principal fund is typically heavily allocated to short-term investment-grade corporate debt to enhance the income profile. To bolster liquidity and reduce volatility, the remainder of the USI portfolio is spread among cash instruments and Treasuries as well as AAA-rated, asset-backed securities.

USI charges 0.18% per year, or $18 on a $10,000 investment, which is competitive among actively managed fixed income strategies.

For more on multi-factor strategies, visit our Multi-Factor Channel.

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.