Investors looking for income with asset diversification can consider multi-asset ETFs, such as the Principal Active Income ETF (YLD). Not only does YLD yield north of 5%, but it’s also higher by almost 8% over the past month.
YLD is an actively managed fund that seeks to achieve its investment objective by investing its assets in investment grade and non-investment grade fixed income securities and in equity securities. The fund’s Sub-Advisors, actively and tactically allocates the fund’s assets among fixed income securities and equity securities in an effort to take advantage of changing economic conditions that the Advisor believes favors one asset class over another.
Standard multi-asset ETFs feature exposure to common stocks, master limited partnerships (MLPs), real estate investment trusts (REITs), closed-end funds, and preferred stocks. However, as an actively managed YLD has latitude to focus on the managers’ best ideas while avoiding yield traps, which some REITs and MLPs have been this year.
YLD’s lineup is currently comprised of about 64% domestic fixed income assets.
Why YLD
YLD also allocates nearly 10% of its weight to preferred stocks, an asset class that has tempting yields and also lends itself to active management.
Preferred stock is a class of equity security that typically pay fixed or floating dividends to investors and have “preference” over common stock, but they are subordinated to bonds. The issuing company must pay dividends to preferred stockholders before common stockholders, and in the event of a bankruptcy or liquidation of the company’s assets, must put the claims of the preferred stockholders ahead of the claims of the common stockholders.
Multi-factor strategies aren’t just for equity investors, and it helps to implement this same opportunity screener within the corporate bond market. Viewing corporate bonds through a multi-factor lens can help investors identify debt issues that can remain resilient in a time of uncertainty amid the coronavirus pandemic.
Adding to the allure of YLD is the Federal Reserve’s overt support for both investment-grade and junk-rated corporate debt.
The current market environment is also more supportive of the bond markets. The Federal Reserve is throwing everything, even the kitchen sink, in the economy. The central bank has enacted near-zero rates and unlimited bond purchases, including investment-grade and speculative-grade corporate debt for the first time, to support credit markets.
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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.